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ANNUAL REPORT 2024
Rolls-Royce Holdings plc
“ What we delivered in 2024 is important but equally important
is how we delivered it. Our goal is to create a sustainably
distinctive business that benefits all of our stakeholders. We
are doing this with pace and intensity, taking the business
to a place in which it can do things tomorrow that are not
possible today.”
Tufan Erginbilgic
Chief Executive
STRATEGIC REPORT
Group at a glance �������������������������������������������������������������������������������������������� 2 Sustainability ���������������������������������������������������������������������������������������������������32
Chair’s statement ��������������������������������������������������������������������������������������������� 4 ����Non-financial and sustainability information statement ��������������32
Chief Executive’s review �������������������������������������������������������������������������������� 6 ����Energy transition and climate ���������������������������������������������������������������34
Our purpose, vision and behaviours ������������������������������������������������������� 10 ����TCFD statement ����������������������������������������������������������������������������������������� 36
Strategy ��������������������������������������������������������������������������������������������������������������� 11 ����Transition plan ��������������������������������������������������������������������������������������������43
External environment ������������������������������������������������������������������������������������13 ����Responsible consumption�����������������������������������������������������������������������45
Business model ������������������������������������������������������������������������������������������������14 ....People and culture ����������������������������������������������������������������������������������� 46
Key performance indicators ����������������������������������������������������������������������� 16 ....Ethics and compliance ������������������������������������������������������������������������������ 51
Financial review ���������������������������������������������������������������������������������������������� 19 Principal risks �������������������������������������������������������������������������������������������������� 52
Our divisions ���������������������������������������������������������������������������������������������������� 25 Going concern and viability statements ������������������������������������������������ 61
����Civil Aerospace ������������������������������������������������������������������������������������������25 Section 172 statement ���������������������������������������������������������������������������������� 63
����Defence ���������������������������������������������������������������������������������������������������������27 Stakeholder engagement ��������������������������������������������������������������������������� 64
����Power Systems ��������������������������������������������������������������������������������������������29
����New Markets �������������������������������������������������������������������������������������������������31
GOVERNANCE REPORT
Chair’s introduction ��������������������������������������������������������������������������������������67 Committee reports ��������������������������������������������������������������������������������������� 80
Board of Directors ���������������������������������������������������������������������������������������� 68 ����Nominations, Culture & Governance ������������������������������������������������� 80
Compliance with the Code �������������������������������������������������������������������������70 ����Audit ��������������������������������������������������������������������������������������������������������������� 82
Corporate governance ���������������������������������������������������������������������������������71 ����Remuneration �������������������������������������������������������������������������������������������� 86
Executive Team �����������������������������������������������������������������������������������������������78 ����....Remuneration policy ���������������������������������������������������������������������������90
����....2024 remuneration report ����������������������������������������������������������������101
����Safety, Energy Transition & Tech ���������������������������������������������������������� 111
Responsibility statements �������������������������������������������������������������������������� 112
FINANCIAL STATEMENTS
Consolidated financial statements ���������������������������������������������������������� 114 Notes to the Company financial statements ���������������������������������������189
Notes to the consolidated financial statements �������������������������������� 122 Subsidiaries ���������������������������������������������������������������������������������������������������� 192
Company financial statements ���������������������������������������������������������������� 187 Joint ventures and associates ������������������������������������������������������������������196
OTHER INFORMATION
Independent auditors’ report ������������������������������������������������������������������198 Reconciliation of alternative performance measures ��������������������� 215
Sustainability assurance statement ��������������������������������������������������������� 211 Directors’ report ����������������������������������������������������������������������������������������� 220
Greenhouse gas emissions ������������������������������������������������������������������������212 Shareholder information �������������������������������������������������������������������������� 223
Other financial information ���������������������������������������������������������������������� 213 Glossary ����������������������������������������������������������������������������������������������������������224
Use of underlying performance measures in the Annual Report
All figures in the narrative of the Strategic Report are underlying unless otherwise stated. We believe this is the most appropriate basis to measure our in-year
performance as this reflects the substance of trading activity, including the impact of the Group’s foreign exchange forward contracts, which lock in transactions
at predetermined exchange rates. In addition, underlying results exclude the accounting impact of business acquisitions and disposals, certain impairment charges
and exceptional items. A full definition of underlying and the reconciliation to the statutory figures can be found on pages 215 to 219. All references to organic
change are at constant translational currency.
Forward-looking statements
This Annual Report contains forward-looking statements. Any statements that express forecasts, expectations and projections are not guarantees of future
performance and guidance may be updated from time to time. This report is intended toprovide information toshareholders and is not designed to be relied upon
by any other party or for any other purpose. The Company and its Directors accept no liability to any other person other thanthat required under English law.
Latest information will be made available on the Group’swebsite. By their nature, these statements involve risk and uncertainty and a number of factors could
cause material differences to the actual results or developments.
Throughout this Annual Report, the information we disclose is in accordance with our reporting obligations as a UK registered company listed on the London
Stock Exchange.
1
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Contents
UNDERLYING REVENUE
1
STATUTORY REVENUE
1
FREE CASH FLOW
1
STATUTORY CASH FLOWS FROM
OPERATING ACTIVITIES
£17,848m
2023: £15,409m
£18,909m
2023: £16,486m
£2,425m
2023: £1,285m
£3,782m
2023: £2,485m
UNDERLYING OPERATING PROFIT
1
STATUTORY OPERATING PROFIT
1
UNDERLYING OPERATING MARGIN STATUTORY OPERATING MARGIN
£2,464m
2023: £1,590m
£2,906m
2023: £1,944m
13.8%
2023: 10.3%
15.4%
2023: 11.8%
UNDERLYING PROFIT
BEFORE TAX
1
STATUTORY PROFIT
BEFORE TAX
1
TOTAL UNDERLYING CASH COSTS
AS A PROPORTION OF UNDERLYING
GROSS MARGIN
1, 2
RETURN ON CAPITAL
1, 3, 4
£2,293m
2023: £1,262m
£2,234m
2023: £2,427m
0.47
2023: 0.59
13.8%
2023: 11.3%
UNDERLYING EARNINGS
PER SHARE
1, 4
STATUTORY EARNINGS
PERSHARE
NET CASH/(DEBT) LIQUIDITY
5
20.29p
2023: 13.75p
30.05p
2023: 28.85p
£475m
2023: £(1,952)m
£8.1bn
2023: £7.2bn
ORDER BACKLOG
6
GROSS R&D EXPENDITURE
1, 7
COUNTRIES WITH A ROLLS-ROYCE
PRESENCE
PEOPLE (MONTHLY AVERAGE)
8
£82.1bn
2023: £68.5bn
£1.5bn
2023: £1.4bn
48
2023: 48
42,400
2023: 41,400
1 A reconciliation of alternative performance measures to their statutory equivalent is provided on pages 215 to 219
2 Total underlying cash costs as a proportion of underlying gross margin is defined on page 219 and is abbreviated to TCC/GM
3 Adjusted return on capital is defined on page 219 and is abbreviated to return on capital
4 Underlying profit after tax has been adjusted for the one-off non-cash impact of £346m related to the net recognition
of deferred tax assets on UK tax losses. See note 5, on page 148 for further details
5 Liquidity is defined as cash and cash equivalents plus any undrawn facilities, as listed on page 61
6 See note 2 on page 142
7 See note 3 on page 144 for a reconciliation of gross R&D expenditure to total R&D expenditure
8 See note 8 on page 150
See note 2 on page 142 for a
reconciliation between underlying
and statutory results
2
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Group at a glance
CIVIL
AEROSPACE
DEFENCE POWER
SYSTEMS
NEW
MARKETS
Civil Aerospace is a major
manufacturer of aero engines
forthe large commercial aircraft,
regional jets and business aviation
markets. The division uses its
engineering expertise, in-depth
knowledge and capabilities to
provide through-life service
solutions for itscustomers.
Defence is a market leader inaero
engines for military transport and
patrol aircraft with strong
positions in combat applications.
It has significant scale in naval and
also designs, supplies and
supports the nuclear propulsion
plant for all of the UK Royal Navy’s
nuclearsubmarines.
Power Systems, with its product
and solutions brand mtu, is a
world-leading provider of
integrated solutions for onsite
power and propulsion, developing
sustainable solutions to meet the
needs of its customers.
New Markets are early-stage
businesses. They leverage our
existing, in-depth engineering
expertise and capabilities to
develop sustainable products for
new markets, focused on the
transition tonetzero.
Underlying revenue Underlying revenue Underlying revenue R&D expenditure
1
Large engines – 72%
Business aviation – 22%
Regional – 2%
V2500 – 4%
Transport – 28%
Combat – 31%
Submarines – 30%
Naval
2
– 7%
Helicopters – 4%
Power generation – 49%
Governmental – 26%
Marine – 10%
Industrial – 14%
BESS – 1%
Rolls-Royce SMR – 63%
Rolls-Royce Electrical
3
– 37%
UNDERLYING REVENUE UNDERLYING REVENUE UNDERLYING REVENUE UNDERLYING REVENUE
£9,040m
2023: £7,348m
£4,522m
2023: £4,077m
£4,271m
2023: £3,968m
£3m
2023: £4m
UNDERLYING OPERATING PROFIT UNDERLYING OPERATING PROFIT UNDERLYING OPERATING PROFIT UNDERLYING OPERATING LOSS
£1,505m
2023: £850m
£644m
2023: £562m
£560m
2023: £413m
£(177)m
2023: £(160)m
UNDERLYING OPERATING MARGIN UNDERLYING OPERATING MARGIN UNDERLYING OPERATING MARGIN UNDERLYING OPERATING MARGIN
16.6%
2023: 11.6%
14.2%
2023: 13.8%
13.1%
2023: 10.4%
n/a
2023: n/a
See page 25 for the Civil
Aerospace divisional review
See page 27 for the Defence
divisional review
See page 29 for the Power
Systems divisional review
See page 31 for the New Markets
divisional review
1 Total R&D expenditure for New Markets in 2024 was £(133)m (2023: £(137)m)
2 In September 2024, an agreement to sell the naval propulsors & handling business was announced
3 In 2023, we made the decision to exit our electrical business and in September 2024 we announced the closure of our advanced air mobility activities
OUR DIVISIONS IN 2024
3
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
GROUP AT A GLANCE
It is now just over three years since I became your Chair. In that short
time, we have embarked on a major transformation of the Group to
build on the iconic strengths of our engineering heritage while
significantly improving the resilience and performance of the business.
We have refreshed our Board and strengthened our Executive Team,
launched a new strategy and are demonstrating the successful
implementation of that strategy through strong financial performance
in 2024. While the transformation journey is not complete, robust
foundations are now in place to support sustainable long-term growth.
On behalf of the Board, I want to thank our people worldwide for their
commitment and passion. Everywhere we go, we meet enthusiastic
colleagues, whose drive for excellence has enabled us to make such a
strong start to our transformation programme.
I also extend my gratitude to our wider stakeholders for your continued
trust and support. Together, we will build on the advances of 2024. We
will ensure that Rolls-Royce remains a force for progress in innovation
and technology, helping our customers benefit from the energy
transition, being a responsible partner to all our stakeholders and
driving a resilient and growing business long into the future.
Financial strength and shareholder distributions
In line with our capital framework, now that the balance sheet is being
strengthened and we have been rated at investment grade by all three
rating agencies in 2024, we are very pleased to reinstate dividends in
respect of the full year 2024 for the first time since 2020, at a 30%
payout ratio of profit after tax. The cash dividend of 6p per share will
be paid in June subject to shareholder approval at our AGM on 1 May
2025. We are also pleased to announce a £1bn share buyback for
completion during 2025. Further detail on our capital framework and
strengthened balance sheet can be found on pages 19 to 21.
Advancing our transformation and culture
In 2023, we outlined the seven workstreams of the transformation
programme and in September 2024 we launched the last of these in
the form of our new purpose and behaviours. These shape how we
think, work and collaborate and build upon the great traditions and
legacy of Rolls-Royce (see page 10).
2024 has been a year of remarkable progress in delivering our
multi-year transformation programme. Throughout 2024, the Board
has monitored progress against our strategic initiatives, outlined at our
Capital Markets Day in November 2023, keeping a close interest not
only on our operational and financial performance but also the
significant investments in technology, engineering capability and the
skills and talents of our people, all of which are crucial to our long-term,
sustainable performance. Tufan talks about these achievements in detail
in his review (see pages 6 to 9) but we also continue to monitor the risks
and challenges facing our business, particularly the geopolitical
environment, technology development and opportunities for growth,
supply chain challenges and the steps that Tufan and his team are
taking to address these.
During 2024, members of the Board visited Derby, UK, Friedrichshafen,
Germany and both Washington and Indianapolis in the US. Our visits
allow us to listen to colleagues and see first hand how the
transformation programme is impacting culture and behaviours across
all our businesses. We have all been very encouraged by the
enthusiasm and dedication of our colleagues as they fully embrace the
new organisational design and ways of working. In addition to our site
visits, our Employee Champions, Bev Goulet and Wendy Mars, through
their engagement programmes, have provided invaluable insights into
our colleagues’ perspectives and needs.
Dame Anita Frew Chair
On behalf of the Board, I want to thank our people worldwide for their commitment
and passion. Everywhere we go, we meet enthusiastic colleagues, whose drive for
excellence has enabled us to make such a strong start to our transformation programme.
4
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Chair’s statement
The expertise that Rolls-Royce has in nuclear technology has been
recognised this year with the proposed investment in Rolls-Royce SMR
by ČEZ Group and our strategic partnership with them in the
deployment of up to three Rolls-Royce SMR power plants in the Czech
Republic. The SETT Committee and other members of the Board
benefited from a deep dive into the SMR technology, business model
and opportunities it presents to provide clean and affordable energy.
We also continue to partner with stakeholders to advance global
sustainability targets. Through collaboration with customers, regulators
and suppliers, we aim to shape the future of aerospace and power
systems, delivering high-integrity solutions that facilitate responsible
and continuing growth.
Board and Executive Team
Over the last three years, we have reviewed and adjusted the cadence
of our Board and Committee meetings to align with the rhythm of the
Executive Team meetings and their agendas. We have found that this
alignment is more efficient and facilitates better discussions at the
Board through lively debate and constructive challenge. This brings
to the table the skills, experience and insights our Board members have
of complex, global industrial businesses, strategic and operational
challenges and capital allocation and financial performance.
This enables the diverse perspectives and expertise of my fellow
directors to add valuable oversight to the work of the Executive Team
as they deliver the transformation programme and manage the risks
we face. Our Board effectiveness review this year confirmed that we
have a cohesive and well-functioning board. However, we are not
complacent. We have identified areas of focus for 2025 which are
discussed further on page 77.
In the medium term, the Nominations, Culture & Governance
Committee will identify future non-executive directors, as both
Bev Goulet and Nick Luff are now in their final three-year term with us.
In identifying new Non-Executive Directors, we will continue to be
mindful of the diversity, experience, skills and knowledge across our
Board to ensure the future success of the Group.
Looking forward
As our 2024 results demonstrate, our transformation programme,
combined with the enthusiasm of our people, is creating a more resilient
and high-performing Rolls-Royce. The Board is particularly pleased
that this progress has allowed us to reinstate distributions to our
shareholders and to upgrade our mid-term targets, two years into our
multi-year transformation journey.
As we look ahead to 2025, we will continue to build on these strong
foundations and to embed our new ways of working to create a business
which is better able to withstand the challenges of the external
environment and to seize the opportunities presented by the
technologies and innovation of the future.
Dame Anita Frew
Chair
Engaging with our stakeholders
My fellow directors and I have enjoyed opportunities to engage with
our stakeholders during the year, for example, shareholders, institutional
investors and government representatives. Where we do not interact
directly, for example, with our commercial customers and suppliers, we
hear regularly from Tufan and members of the Executive Team about
their engagement with and feedback from these stakeholders. For more
information see pages 64 and 65.
With geopolitical uncertainty and the increased focus by governments
on their defence capabilities, the Board recognises the importance of
our Defence division in the world, today and in the future. We therefore
visited Washington, US in September and met with the Defence
leadership team and the directors of our Rolls-Royce North America
board. In addition, with the aid of external advisers, we explored
perspectives on potential geopolitical risks and the possible
implications of a change to the US administration.
My Board colleagues and I value the opportunity to meet and hear
from our people across the Group and on our visits to both Derby, UK
and Indianapolis, US in 2024, we held Meet the Board events with our
people across the business. We ensure, through these events, that we
encourage open dialogue to provide the opportunity to discuss issues
that matter to our colleagues.
In November, together with colleagues on the Board, I visited our
submarines business in Raynesway, Derby, UK. We spent the day with
the leadership team to understand how they are responding to the
opportunities provided by the AUKUS agreement and growth
opportunities for our nuclear business. While at our facilities in Derby,
UK, we were reminded, through the presence of our Nuclear Skills
Academy, launched in 2022, of the valuable contribution which
Rolls-Royce makes in our communities, particularly in providing
opportunities and careers in science, engineering and technology.
The Board recognises the importance of our communities and
understands that everything we do can have an impact on our local
and global communities. During 2024, our focus has been supporting
young people to overcome barriers to participation, especially through
STEM learning opportunities. The Rolls-Royce Schools Prize for Science
& Technology was held in Derby, UK in 2024, attended by some of my
Board colleagues. Our community investment is discussed in more
detail on page 49.
Sustainability and innovation
Our sustainability agenda remains integral to our strategic framework
and our commitment to become a net zero company by 2050. Our
Board actively oversees the progress of the sustainability initiatives,
ensuring that environmental, social, and governance (ESG)
considerations guide all material decisions. We have prioritised cleaner,
more efficient technologies across our portfolio, reducing emissions,
waste and resource consumption. The introduction of alternative fuels
brings an exciting element to our energy transition agenda.
In 2024, the Board approved the first phase of a sustainability strategic
review for the Group, which is described more fully from page 33. This
followed a detailed and insightful review by our newly created Safety,
Energy Transition & Tech Committee (SETT Committee). This
Committee is well placed to assist the Board in its oversight as we
continue to develop our sustainability programme.
Together with other Board colleagues, I was pleased to join a deep dive
on our UltraFan programme to understand the future opportunities
this technology provides in supporting the drive towards more energy
efficient air travel in both the wide and narrowbody aircraft markets.
My Board colleagues and I were delighted to see the UltraFan programme
receiving recognition at the Aviation Week Network’s 66th Laureat
Awards. In June, members of our SETT Committee took the opportunity
to visit our Power Systems division to see first-hand how they are
developing their product portfolio to facilitate the use of alternative
and more sustainable fuels.
“Now that the balance sheet is being
strengthened, we are very pleased to
reinstate dividends in respect of the
full year 2024.”
5
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
CHAIR’S STATEMENT
Tufan Erginbilgic Chief Executive
The combination of purpose, vision, a granular strategy, clear strategic initiatives and
behaviours has created an aligned, energised and mobilised team. This is the foundation
on which we will build a distinctive performance culture.
Our delivery in 2024
In 2024, Rolls-Royce delivered another strong year. Operating profit
of £2.5bn and free cash flow of £2.4bn is the highest in the history of
Rolls-Royce, as was our Group operating margin of 13.8%. This delivery
was driven by our transformation programme and the dedication of
everyone at Rolls-Royce. I would like to thank all our colleagues for
their continued hard work in support of our vision to become a
high-performing, competitive, resilient and growing business.
Our progress to date shows that we are expanding the earnings and
cash potential of Rolls-Royce. Alongside delivering significantly
improved performance, we are creating a sustainably distinctive
business in terms of safety, operational effectiveness and customer
service, with advantaged technologies and products and a distinctive
performance culture. This is the transformation programme we are
driving – transforming Rolls-Royce to a place it has never been before
and opening up further potential for future profitable growth.
Our financial performance has improved significantly over the last two
years. This has been achieved despite a supply chain that remains
challenging and understates the true impact of our transformation.
Group operating profit has risen by almost four times from £652m in
2022 to £2.5bn in 2024. Our operating margin has increased from 5.1%
to 13.8% in 2024. These impacts have been driven by our strategic
initiatives. All three divisions have contributed to this performance.
At our Capital Markets Day (CMD) in 2023 we set out the performance
delivery required to achieve our vision, measured by four strategic
goals. These were; operating profit of between £2.5bn and £2.8bn;
operating margin of between 13% and 15%; return on capital employed
of between 16% and 18%; and free cash flow of between £2.8bn and
£3.1bn. We called these our mid-term targets and set a goal of
achieving them by 2027. Driven by the accelerated strategic progress
made in all our divisions by the end of 2024, cumulative profit and cash
performance achieved around 90% and around 80% of these mid-term
targets, respectively.
In addition to a step change in profit and cash delivery, we made
substantial progress on deleveraging our balance sheet and increasing
our resilience. Our efficiency levels are becoming class-leading and
this is fundamental to our ability to shape our own agenda, rather than
our agenda being set by volatility in the external environment.
This strong performance means that we are very pleased to be able to
reinstate dividends for the first time since 2019, at a 30% payout ratio
of profit after tax. It also enables us to announce a £1bn share buyback
for completion during 2025. These are significant announcements for
Rolls-Royce and our shareholders. Our strong balance sheet was
recognised externally by the ratings agencies with all three, Fitch,
Moody’s and S&P, holding Rolls-Royce at investment grade in 2024 for
the first time since 2020.
The guidance we published for 2025 marks another important milestone
on our transformation journey. Our guided operating profit of
£2.7bn-£2.9bn and free cash flow of £2.7bn-£2.9bn are within the
mid-term target ranges set at our CMD, two years earlier than planned.
It shows that we have materially increased the potential of the business
and we therefore upgraded our mid-term targets, based on a 2028
timeframe, to operating profit of £3.6bn-£3.9bn and free cash flow of
£4.2bn-£4.5bn. These upgraded mid-term targets are a milestone rather
than a destination and we see strong growth, earnings expansion and
cash flow potential well beyond this timeframe which I will address later
in this report.
6
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Chief Executive’s review
Now let’s turn to our progress in delivering on our transformation
programme�
Progress on our strategic framework
Portfolio choices and partnerships
We have increased net investments by approximately £500m over the
last two years, focusing on the most profitable projects across the
Group. In Civil Aerospace, for example, we successfully tested the
UltraFan in 2023. We are now focused on further improving its design
and developing demonstrators for both narrow and widebody aircraft.
We have invested to grow capacity in Derby, Dahlewitz, and Singapore.
This will allow us to deliver more new engines and, by the end of this
year, perform an additional 50% more shop visits compared to 2023
to support rising aftermarket volumes. We also received the first Trent
1000 to our MRO facility in Dahlewitz. We will continue to make
investments in this important area.
In Power Systems, we successfully completed testing of our next
generation engine. This differentiated technology will allow us to enter
new market segments and will enter service in 2028. This is the first
investment in a new engine architecture in Power Systems for over
20 years�
In 2024, Rolls-Royce SMR was named as the preferred supplier for the
construction of small modular reactors by the Government of the Czech
Republic and the Czech State utility, ČEZ Group. This is strengthened
by a strategic investment by ČEZ in Rolls-Royce SMR, announced in
the last quarter of 2024, and an exclusive commitment to deploy up to
3GW of electricity in the Czech Republic.
We continued to make progress on our divestment programme, making
clear choices for where we will and will not invest. We announced the
disposals of non-core activities of our portfolio including our direct air
capture assets, the naval propulsors & handling business in our Defence
division, and the lower power range engines business in Power Systems.
We also made the decision to exit our advanced air mobility activities
alongside our electrolyser and fuel cell activities.
Strategic initiatives
In Civil Aerospace, one of our most important strategic initiatives is
time on wing. At the CMD, we set out our target of delivering a 40%
increase in time on wing across our modern engines by 2027. By the
end of 2025, we will have already delivered a significant portion of this.
We now believe we can achieve double this time on wing improvement,
further reducing shop visits over the mid-term.
On Trent 1000, we are in the final stages of certification of our new
HPT blade that will more than double the time on wing of this engine.
Flight testing was successfully completed and we have switched over
original equipment (OE) production to the new blade. We expect
certification by mid 2025. This will provide a near-term benefit as we
introduce the new blade onto all engines across the fleet over the next
two years. We are also on track to complete further improvements to
the Trent 1000 and Trent 7000 by the end of this year, adding a further
30% to time on wing.
On the Trent XWB-97, we are doubling the life of the engine in
non-benign environments and increasing it by 50% in benign
environments. The first phase of improvements, new coatings for the
turbine blade and seal segment, has been certified and is performing
well. The next phase of improvements is underway and on track to be
delivered by the end of 2027.
At the end of 2024, we achieved certification for an enhancement
package for the Trent XWB-84. This builds on the engine’s proven track
record as the world’s most efficient large aero engine in service. This
unlocks a 1% improvement in fuel efficiency while further advancing
its industry-leading reliability and durability. On the Trent XWB-84, a
compressor blade modification to the engine combined with improved
analysis of millions of hours of operating data will allow us to
systematically raise the cyclic limit of critical parts.
Our transformation
Our strategic progress is a result of ‘what’ we choose to do and equally
importantly ‘how’ we are running the business. Our goal is to create a
sustainably distinctive business that benefits all our stakeholders. We
are doing this with pace and intensity, taking the business to a place in
which it can do things tomorrow that are not possible today. This will
enable Rolls-Royce to deliver on its full potential. Our transformation
programme is at the heart of how we do this. It is a holistic programme
that brings together our strategy, our purpose and our behaviours
enabling us to deliver as One Rolls-Royce.
In the 2023 Annual Report, I covered how we created our strategy. We
included over 300 of our colleagues in an inclusive and rigorous
process which ensured alignment so that we could quickly enter the
execution phase in early 2024 with our teams. We led this through our
strategic initiatives, a set of detailed programmes owned throughout
the business. This process ensures that every employee understands
the role they play in delivering the Rolls-Royce strategy. It transforms
strategy into an alignment, engagement and a performance
management tool�
We complemented this strategic process in 2024 with our new purpose
and behaviours. Our purpose, a force for progress, powering,
protecting and connecting people everywhere, demonstrates the
impact of our products to make a positive contribution to society and
our enduring commitment to engineering, technology and innovation.
Our new behaviours: put safety first; do the right thing; keep it simple;
and make a difference are explained in detail on page 10. As we engaged
with our teams through 2024 on the purpose and behaviours, one of
the most powerful programmes to evolve was our change makers
initiative. These individuals are self-nominated employees throughout
the Group who help embed, train, showcase and sustain our purpose
and behaviours in their business areas. We had over 1,200 change
makers sign up and we look forward to their continued support in 2025.
As our behaviours show, safety is the first and most important priority
for every one of us at Rolls-Royce. In 2024, our total reportable injuries
rate continued to decline, reaching 0.29 per 100 employees, a decrease
from 2023 (see page 47). This is a positive trend, but even one injury
at work is one too many and our mindset is always to drive this to zero.
We also provide mission critical products that people’s lives depend
upon and we continuously strive to make our products even safer.
Remaining vigilant and ensuring our culture gives everyone the
confidence and tools to speak up about any product safety concern is
at the heart of this. No journey to improve safety is ever complete and
we must never be complacent. It will remain our first priority.
The combination of purpose, vision, a granular strategy, clear strategic
initiatives and behaviours has created an aligned, energised and
mobilised team. This is the foundation on which we are building a
distinctive performance culture. We have made good progress on this
in 2024 and it will be a key focus area for 2025. It is not only about
delivering our commitments in 2025, but also changing the way we
think and act about our performance. For example, the pace, rigour
and intensity with which we operate day-to-day; having the right
management information at the right time; how we respond with agility
to challenges; and how we make timely interventions to make
improvements where needed. This is how we intend to transform
Rolls-Royce and deliver our vision of a high-performing, competitive,
resilient and growing business.
“Safety is the first and most important
priority for every one of us at
Rolls-Royce.”
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW
These advantaged products are enabling continued sales momentum.
We secured an order for 60 Trent XWBs from IndiGo, the first ever
agreement for Rolls-Royce with the Indian airline. This was complemented
by major orders from EVA Air, Starlux and Delta Air Lines. Orders for
our newest engine, the Trent 7000, from Starlux, Vietjet Air, Virgin
Atlantic, Cathay Pacific and Flynas, made 2024 the best year for the
Trent 7000 since the launch of the A330neo aircraft. On the Trent
1000, we were very pleased to record a repeat order from EL AL Airlines.
Business aviation passed significant milestones on its new product
roadmap during the year. Deliveries of the Pearl 700, for the Gulfstream
G700 business jet, ramped up following the aircraft’s entry into service
in April. In October, the Pearl 10X successfully completed its flying test
bed campaign. This is an important step in the Falcon 10X flight test
programme ahead of the aircraft’s entry into service in 2027.
Our Defence division had notable contract wins in 2024 and passed
several important development milestones. In the first half of the year,
we were selected to form part of the team, led by prime contractor
SNC, to modernise and deliver a replacement for the United States Air
Force’s current fleet of E-4B Nightwatch aircraft as part of the
Survivable Airborne Operations Centre contract. This order will have
a near-term benefit to earnings. In August, the next phase of testing
began on the F130 engine in Indianapolis, US, another step towards
delivering the United States Air Force B-52J Stratofortress. Work
towards the US Army’s Future Long Range Assault Aircraft (FLRAA)
continued in 2024, with the programme entering the engineering and
manufacturing development phase of the process, the final phase
before production commences. Production for all of these programmes
will begin towards the end of this decade.
Work is progressing on the design of the engine demonstrator for the
sixth-generation fighter of the Global Combat Air Programme (GCAP)
with our partners in Italy and Japan. Work on a combat air
demonstrator as part of Team Tempest in the UK ramped up during the
year ahead of test flights within two years utilising existing EJ200
engines. During the year, we signed a memorandum of understanding
with ITP Aero to explore a partnership to design, develop, manufacture
and support a ‘wingman engine’, a state-of-the-art solution for large
remote carriers. This is a great example of One Rolls-Royce in action
as the engine concept builds on the core demonstrator which lies at
the heart of the Pearl business jet engine family.
In Power Systems, power generation’s transformed business model
allowed us to capture profitable growth in the data centre market. We
have over 85,000 units installed globally providing over 10GW of
back-up power for data centres and giving us a market share of around
20%. Data centre operators are increasingly looking for more
sustainable solutions and during the year we received an order for our
kinetic powerpacks for a facility in Colorado Springs, US, and helped
Swedish operator EcoDataCenter switch the fuel for its mtu emergency
power generators from fossil-derived diesel to sustainable hydrotreated
vegetable oil. Our battery energy storage solutions are now in over
140 projects worldwide.
Our submarines business signed the biggest contract in its history with
the UK Ministry of Defence in 2024. This eight-year agreement brings
together all elements of research and technology, design, manufacture
and in-service support of the nuclear reactors that power the Royal
Navy’s fleet of submarines.
Following the 2023 announcement of the AUKUS agreement between
Australia, US and the UK, for which we provide nuclear reactor plants,
we welcomed the announcement in 2024 that the Australian
Government would be investing in its ongoing AUKUS preparations.
This supplements the expansion funding already committed by the UK
Government. Work is now underway to double the size of the
Rolls-Royce submarines site in Raynesway, Derby, UK creating over
1,100 skilled roles. Our Nuclear Skills Academy in Derby is also helping
to provide a strong pipeline of skilled recruits for Rolls-Royce and the
wider supply chain.
Efficiency and simplification
Significantly improving our cost base means that our commercial
improvements and therefore gross margin increases, flow directly to
our bottom line. At our CMD, we set out a target of delivering
£400m-£500m of efficiency and simplification benefits across the
Group to make us more competitively advantaged, resilient and fit for
the future. This target included annualised benefits of approximately
£200m from our organisational design programme, reducing layers,
removing duplication and driving synergies across the Group to enable
simpler, more agile ways of working. To date, we have delivered efficiency
and simplification benefits of more than £350m. By the end of 2025,
we expect to deliver benefits of more than £500m, two years earlier
than planned.
We have already delivered more than half of our CMD target to deliver
£1bn of gross procurement savings over five years to 2027. This
significantly helps offset the impact of inflation in a challenging supply
chain environment. By the end of 2025, we expect to deliver more than
£1bn of gross procurement savings.
We are implementing a new global business service strategy which will
improve performance and increase efficiency, effectiveness, and
experience. We have a new centre opening in Poland and we are
expanding our centre in India. Additionally, we are also rolling out
zero-based budgeting across the Group, following successful pilots in
Civil Aerospace. These pilots demonstrated savings of 10%-15% in third
party costs in identified areas.
Lower carbon and digitally enabled businesses
Our transformation gives us the strength to successfully develop and
deliver the products that will support our customers through the energy
transition across multiple markets. In Civil Aerospace, sustainable
aviation fuels (SAF) present a near-term opportunity to decarbonise
flight. Having successfully powered a commercial transatlantic flight
in late 2023 on 100% SAF, we have continued to advocate for the
take-up of sustainable fuels. In Defence, having supported the UK’s
Royal Air Force (RAF) in its testing of SAF blends in Typhoon refuelling
missions, the RAF this year began using a blend of SAF with normal jet
fuel on routine Typhoon operations for the first time.
OUR STRATEGIC FRAMEWORK
Portfolio choices and
partnerships
The markets we have chosen to
operate in, businesses we want to
invest in and the partnerships
that will help create truly winning
positions.
Strategic initiatives
How we will create a competitive
business, expand our earnings
potential and sustainably improve
our performance.
Efficiency and
simplification
The importance of a Group-wide
focus to drive synergies that will
enable us to be more competitive
and simplify the way we operate.
Lower carbon and digitally
enabled businesses
Our commitment to the energy
transition and capturing the
benefits of becoming digitally
enabled.
8
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CHIEF EXECUTIVE’S REVIEW
Beyond the mid-term
In Civil Aerospace, we are uniquely positioned to capitalise on our
advantaged positions in widebody and business aviation. The benefits
of our OE and aftermarket contract renegotiations and commercial
optimisation actions on new and renewing contracts are progressively
scaling up, with the full benefits to come beyond the mid-term. The
same is true for time on wing. We are spending £1bn on improving the
time on wing of our modern engines by the end of 2027. Not only will
this investment be concluded by that point, but the cash benefits of
our time on wing improvements will also start to ramp up beyond the
mid-term.
UltraFan, which is 10% more efficient than the Trent XWB-84 – already
the most efficient engine on the market – is 100% SAF compatible. This
positions us strongly for the growth opportunity ahead on next
generation of aircraft, both widebody and narrowbody.
In business aviation, we are strongly positioned on the latest large cabin
business jets, including the G700 and G800, and the Dassault Falcon
10X. This will allow us to outgrow the market beyond the mid-term and
deliver strong profitable growth thanks to our commercial optimisation
and cost efficiency actions.
In Defence, growth beyond the mid-term will be driven by the ramp-up
of programmes that are currently in the development phase. On the
B-52, we expect to deliver around 600 engines, with production
starting in the late 2020s. FLRAA revenues will start to ramp-up in the
late 2020s and, as a replacement for the Blackhawk helicopter, looks
set to be a very large programme with the potential for significant
export sales in addition to the US Army. Production for GCAP, a next
generation combat aircraft, will see production ramping up in the
mid-2030s. Rolls-Royce looks forward to powering the US Navy’s MQ-25,
the first autonomous refueler in aviation history. This aircraft will use
the AE 3007N engine and expands our leadership in unmanned
propulsion. In submarines, revenues from AUKUS will ramp up by around
50% from today to the late 2020s. All of these are significant programmes
for which our investment today will yield significant profitable growth
from beyond the mid-term.
In Power Systems, our differentiated products in power generation,
governmental, marine and industrial end markets are all expected to
grow beyond the mid-term. Power generation, for example, remains
highly attractive with significant long-term growth potential in data
centres. Having fixed the business model in power generation, we are
now able to profitably capture this growth. Additional profitable growth
will come from our next generation engine in Power Systems, offering
significantly improved power-density and efficiency. This differentiated
product will create commercial opportunities and new market segment
access from 2028 onwards.
Our unique nuclear capability means that we are well placed to capture
growing demand for both SMRs and micro reactors. We see a significant
market opportunity for micro reactors, in defence, space and
commercial end markets. This is a multi-decade business opportunity
for which we already have the right technology.
This is an exciting time for Rolls-Royce. Our teams are energised and
aligned. We have made substantial progress on our transformation and
are delivering strategic progress ahead of plan. I would like to thank
again the whole of the Rolls-Royce team for making this possible. They
are passionate, dedicated and committed, which enables us to look
forward to 2025 and beyond with confidence.
Tufan Erginbilgic
Chief Executive
The introduction of alternative fuels enables our products to be made
compatible with the energy transition. Within Power Systems, 80% of
our portfolio is now compatible with alternative and more sustainable
fuels. We have delivered over 500 HVO-powered mtu generators to
the data centre sector. At the start of 2024, we successfully tested our
gas variant of the popular mtu Series 4000 engine with 100% hydrogen
fuel. Our Battery Energy Storage System (BESS) business, which will
become profitable in the near-term, is growing quickly: we expect to
deliver BESS contracts with a total of 2,000 megawatts over the next
two years.
Our unrivalled end-to-end experience in nuclear technology, is
opening up new areas for us. Our SMR technology successfully
completed step 2 of the Generic Design Assessment by the UK nuclear
industry’s independent regulators and we moved immediately into the
third and final stage. That move confirmed Rolls-Royce SMR ahead of
any other SMR provider in Europe. In addition to the win in the Czech
Republic, Rolls-Royce SMR was also down selected by Great British
Nuclear as one of the four remaining companies in the UK Government’s
SMR competition. A final selection is expected in spring 2025. Other
countries have already embraced our capability with Vattenfall, the
Swedish multinational power company, naming us as one of just two SMR
companies competing to potentially deploy a fleet of SMRs in Sweden.
Looking ahead to the mid-term
Our strong delivery in 2023 and 2024 gives us confidence to upgrade
our mid-term targets to 2028. These targets are underpinned by our
actions, strategic initiatives and investments and they reflect the
potential that we see from the business. We have upgraded operating
profit to £3.6bn to £3.9bn, an improvement of £1.1bn to £1.4bn compared
to 2024. Our mid-term operating margin target is 15% to 17% compared
to an operating margin of 13.8% in 2024, as we transform Rolls-Royce
into a truly competitive business. Our mid-term target for free cash
flow is £4.2bn to £4.5bn which compares to the £2.4bn delivered
in 2024�
The performance improvement and the actions required to deliver
these targets are owned across the Group and supported through
rigorous performance management. They are also underpinned by the
successful continuation of our transformation programme and our
differentiated capability in attractive markets that are growing.
For example, we are delivering more than 50% of new widebody
deliveries through this period, which means our installed fleet will grow
at 7% to 9% compared to 3% to 5% for the market. We are driving a
higher EFH rate through commercial optimisation, with a growing cash
benefit from onerous contract renegotiations and as new contracts
scale up�
In business aviation, our business improvements in both OE and
aftermarket drive profitable growth faster than the market. We expect
deliveries of large cabin business jets to grow by double digit
percentages to the mid-term and significantly higher than the market.
In power generation, we expect revenue growth of 15% to 17% per year
compared to around 10% for the market. This is driven by our
differentiated products and our disproportionate weighting to
data centres.
“The performance improvement and
the actions required to deliver our
targets are owned across the Group
and supported through rigorous
performance management.”
9
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
CHIEF EXECUTIVE’S REVIEW
OUR BEHAVIOURS
We launched our new purpose and behaviours in September 2024. We are proud to
be a business that has truly helped to shape the modern world and our ambition is to
continue in this role for the long term. Our new purpose statement encapsulates that
commitment to the future and reflects why we exist as a business.
Efficiency and
simplification
3
Strategic initiatives
2
Portfolio choices
and partnerships
1
Lower carbon and
digitally enabled
businesses
4
OUR PURPOSE
A force for progress; powering, protecting and connecting people everywhere
OUR VISION
Transforming Rolls-Royce into a high-performing, competitive, resilient and growing business
OUR STRATEGY
A strategic framework to build a sustainably distinctive and leading business
For more information, see the Chief Executive’s
review on pages 6 to 9
For more information, see People and culture on
pages 46 to 50
Put safety first
Prioritising the safety of our
people and products and
supporting each other to
speak up
Do the right thing
Supporting a culture of caring
and belonging where we listen
first, embrace feedback and
act with integrity
Keep it simple
Working together to share
and execute ideas and staying
adaptable to new ideas and
solutions
Make a difference
Thinking about the business
impact of our choices and the
business outcomes of our
decisions and challenging
ourselves to deliver excellence
and efficiency every day on
the things that matter
10
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Our purpose, vision and behaviours
OUR TRANSFORMATION
Rolls-Royce has been at the forefront of innovation for over a century.
We set the standard for engineering excellence, providing
mission-critical products and services to customers around the globe.
We have built a world-class product portfolio and deep customer
relationships in attractive markets. Our focus now is to translate our
technical and market success into strong financial results. This is
reflected in our upgraded mid-term targets (see page 21).
The strong progress made in 2024 gives us the confidence in the
delivery of our strategy. We are accelerating financial delivery and are
moving at pace to achieve our mid-term targets, a key milestone towards
unlocking our growth potential.
The Rolls-Royce proposition
1� Become a high-performing, competitive and resilient business.
2� Grow sustainable free cash flow.
3� Build a strong balance sheet and grow shareholder returns.
Delivering the proposition is making us a stronger partner, to the
benefit of all our stakeholders, as they face future challenges and
opportunities. We are unlocking our full potential by turning
engineering excellence into strong financial performance.
To implement our strategy, we are being disciplined, agile and
systematic. We will continue to have a tight focus on priorities, improve
commercial discipline and seek efficiency in every step, whilst never
compromising on integrity or safety. We have put the business on a
stronger financial footing with sustainable improvements in working
capital, higher operating margins and improved operational
performance.
Improving profitability will give us more options to grow the business
and enhance shareholder returns. This performance shift is also crucial
to creating more opportunities for our people to be part of an
energising, rewarding and world-leading company.
In 2024, significant progress was made by delivering on a clear strategy. Execution
towards building a high-performing, competitive, resilient and growing business is
underpinned by our transformation and a differentiated performance culture.
A HIGH-PERFORMING, COMPETITIVE AND RESILIENT
BUSINESS WITH PROFITABLE GROWTH
GROWING SUSTAINABLE FREE CASH FLOWS
STRONG BALANCE SHEET AND GROWING
SHAREHOLDER RETURNS
STRATEGIC FRAMEWORK
— Portfolio choices and partnerships
— Strategic initiatives
— Efficiency and simplification
— Lower carbon and digitally enabled businesses
DELIVER AS ONE ROLLS-ROYCE
— Embrace new ways of working and mindset
— Establish a differentiated performance culture
— Execute with strategic clarity
— Externally focused and benchmarking
— Simplified organisation and strengthened capabilities
11
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Strategy
OUR STRATEGIC FRAMEWORK: DELIVERING SUSTAINABLE GROWTH THROUGH TRANSFORMATION
1. Portfolio
choices and
partnerships
We have made choices about the markets in which to operate, where to invest and the partnerships that
will help create winning positions, based on clear criteria. We only invest where the market is attractive and
growing, where we can build an advantaged position, differentiated through strong customer relationships
and competitive technology, and where there are high barriers to entry. This allows us to allocate resources
more effectively and drive profitable growth.
In Civil Aerospace, we successfully tested our UltraFan demonstrator and continue development to position
us as a strong partner for the next generation of narrowbody aircraft. In SMR, we have reached an
agreement with the ČEZ Group to deploy up to 3GW of capacity in the Czech Republic and work together
to develop projects across Europe. We agreed to sell our US-based naval propulsors & handling business
to Fairbanks Morse Defense; completed the sale of Power Systems’ lower power range engines business to
Deutz; and completed the sale of our direct air capture assets. We also took the decision to close our
advanced air mobility activities.
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C
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2. Strategic
initiatives
Enhancing our competitiveness, expanding our earnings potential and sustainably improving our
performance relies on the successful implementation of our strategic initiatives. The initiatives are owned
by our teams and the process we have put in place ensures that every employee knows their role in
delivering against the targets, creating complete alignment with the Rolls-Royce strategy.
We are making good progress against our strategic initiatives. Delivery against these is helping to drive
change across the Group, increasing value through top- and bottom-line actions. In Civil Aerospace, we
have made significant technical progress in improving time on wing, strengthening our position in large
engine aircraft. We further solidified our leadership in business aviation with the G700 entry into service
and first flight of the Pearl 10X for our new customer Dassault. In Defence, we made progress on our strategy
to grow our combat business, as well as commencing work to double the size of the Rolls-Royce Submarines
site in Raynesway, Derby, UK. In Power Systems, actions on pricing and cost control have enhanced margins,
allowing for profitable growth. We are particularly well-positioned to benefit from the rapidly growing data
centre and governmental markets.
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3. Efficiency
and
simplification
Our Group-wide focus to drive synergies is making us more competitive by delivering significant and
recurring operating cost reductions. Key levers include a more efficient and simplified operating model, a
refreshed organisational design, changed ways of working, improved investment discipline, as well as more
focused management of third-party costs. We now expect to achieve cumulative savings of over £500m
in 2025�
By the end of 2024, we had delivered more than £350m of cumulative benefits, well on track to deliver our
target. Clear priorities on capital allocation, driven through a rigorous centralised process, have allowed
us to be more focused and enabled investment in key initiatives. We have introduced a new purpose and
behaviours, the foundations on which we are building a performance management culture. This is
complemented by our new organisational design, which came into effect in the middle of 2024, creating
an organisation that is leaner, more focused and with fewer layers.
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11
4. Lower carbon
and digitally
enabled
businesses
We are committed to reaching net zero by the end of 2050, with an interim target of reducing Scope
1 + 2 emissions by 46% by the end of 2030 against a 2019 baseline. We support our customers in achieving
their ambitions by improving the efficiency of our products, which serve some of the hardest to decarbonise
sectors�
Digital technology will play an increasingly important role throughout our value chain. We already use data
from products in service to create value for ourselves and for our customers. We focus on four areas:
enhancing the customer experience; accelerating product design; improving manufacturing; and empowering
our people�
Through our UltraFan demonstrator, we are advancing our technologies to improve fuel efficiency. In Defence,
having supported the RAF in its testing of SAF blends in Typhoon refuelling missions, the RAF this year
began using a blend of SAF with normal jet fuel on routine Typhoon operations for the first time. We have
successfully tested our gas variant of the popular mtu Series 4000 engine with 100% hydrogen fuel; and by
the end of the year we had been awarded hydrogen-readiness certification by international technical
inspection specialists TÜV Süd for our current mtu Series 4000 gas engines. The Rolls-Royce SMR design
also entered the final stage of the regulatory licencing process, having completed step 2 in August 2024,
which we believe gives us a significant advantage to our competitors.
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C
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2
3
4
5
6
7
8
10
11
Link to KPIs
A
Order backlog
B
Underlying revenue
C
Underlying operating profit/(loss)
D
Underlying operating margin
E
Free cash flow
F
TCC/GM
G
Return on capital
H
Gross R&D expenditure
I
Gross capital expenditure
J
Safety index
K
Total reportable injuries rate
L
Employee engagement
M
Sustainability
For more information, see
the Chief Executive’s review
on pages 6 to 9
For more information, see
Our divisions on pages 25
to31
For more information, see
Sustainability on pages 32
to51
Link to risk
1
Safety
2
Compliance
3
Strategy
4
Execution
5
Business interruption
6
Energy transition
7
Information & data
8
Market & financial shock
9
Political
10
Talent & capability
11
Technology
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGY
Geopolitical and policy uncertainty
Geopolitical dynamics such as intensifying US-China competition and
rising protectionism pose challenges and may open up the
requirement for strategic reassessment. Potentially impactful policies,
such as tariffs deployment amongst key trade partners, could lead to
increased costs and consequentially realign the global supply chain.
Regional conflicts, particularly in the Middle East and Europe, add
further complexity to the energy and commodity backdrop through
uncertainty and risk of escalation. Evolving defence commitments,
notably within NATO, are translating into increased demand for a
variety of platforms, creating growth opportunities.
Rolls-Royce response
We are proactively anticipating issues, mitigating risks and advocating
potential impacts in key sectors. Market exposures are being monitored,
and we are adapting supply chain strategies to ensure resilience amid
potential protectionist measures and evolving trade dynamics.
Rolls-Royce is a global company with a strong US footprint and we are
conducting additional feasibility assessments regarding increasing
utilisation of our current US footprint, such as in Aiken and
Indianapolis. We believe that we are evolving towards a multipolar world,
which shapes our business strategy and capital allocation.
Economic outlook
World GDP is projected to grow steadily over the next three years and,
encouragingly, inflationary pressures are easing in key markets, with
consumer price inflation showing a consistent downward trend since
2022. However, the pace of central bank interest rate cuts may be slower
than market expectations, reflecting cautious monetary policy
adjustments amid evolving global dynamics. There is sustained capital
spending from multinationals and governments to establish
hyper-scaling data centres leading to strong demand for back-up power.
Consumer behaviour has shifted markedly toward experience-driven
spending, led by high-income households, which remain less affected
by inflationary spikes. Large international air traffic markets, such as
China, are on a gradual recovery path and are expected to eventually
regain their pre-pandemic growth contribution. Strong corporate
earnings and an increased number of high-net-worth individuals are
leading to strong demand in business aviation and the yacht market.
Rolls-Royce response
We are well placed to benefit from these long-term macro trends and
are strategically aligning our capabilities to ensure we capture the
opportunities presented by these shifting economic dynamics. Our
focus is on expanding our offering to segments that demonstrate robust
growth potential, such as commercial aviation, business aviation and
premium maritime segments, such as sport fishing and yachts.
Furthermore, the surging demand for reliable power solutions, especially
to support the increasing computing power requirements, means we
are well placed to serve the growing data centre market both today
with our back-up power solutions and in the future through nuclear
solutions like small modular reactors and advanced modular reactors.
Supply chain challenge
Global supply chains are increasingly shaped by geopolitical risks,
natural disasters and cyber security concerns. Invisible costs in supply
chains are rising, complicating business operations, such as the
disruptions to traffic in the Red Sea. Geopolitical economic relationships
are redefining established trade flows, while new players, such as India
and Mexico, are rising as critical nations in the supply chain realignment.
The purchasing manager indices of surveys conducted through 2024
indicate stagnant growth in the manufacturing and services sectors in
key economies, such as China, the UK and Germany. This does point to
a fragile recovery but one which is poised to benefit from stimulus
measures. Supply chain challenges are also influencing the aerospace
market, affecting the industry’s ability to reach pre-pandemic aircraft
delivery levels.
Rolls-Royce response
We are continuously working in partnership with our suppliers,
including supporting them with Rolls-Royce expertise, to identify
supply chain improvements. We are investing in advanced digital tools
to help enhance supply chain visibility and resilience. We constantly
monitor global risks to our supply chain and use dual sourcing where
appropriate, in addition to building new and existing supply chain
capacity to reduce our exposure to potential issues. We are also
developing our assembly, test and MRO capability and capacity for civil
large engines. This enhances our ability to deliver value while reducing
vulnerabilities, ensuring we remain competitive in an evolving trade
environment. We maintain steadfast commitment to our core priorities,
particularly the production ramp-up of commercial engines.
Long-term trends
Two key megatrends continue to shape the environment we operate in:
—
The global energy transition and decarbonisation efforts are
accelerating demand for sustainable, efficient and technologically
advanced power solutions. Fundamental trends, such as forecasted
peak coal demand, demographic shifts and income disparities,
represent both challenges and opportunities. Additionally, the energy
transition and global decarbonisation efforts are setting the scene
for long-term demand for power solutions.
— Digital transformation and AI has the potential to further transform
how society operates. For example, data science and AI can increase
productivity in research, development and manufacturing more
quickly. For knowledge workers, AI can improve decision making and
reduce both errors and costs.
Rolls-Royce response
The transition to a lower carbon economy presents opportunities across
the portfolio which we continue to proactively review. Our focus remains
on positioning ourselves favourably to benefit from key trends to enhance
shareholder value whilst embracing long-term sustainability goals. We
are constantly developing and invest in new technologies to ensure
that we deliver the most efficient solution to our customers.
We are actively embedding AI and digital tools throughout our business.
Examples include augmented decision making through real-time data
driven insights and accelerated generation of component designs,
optimised for production and operation. We are focusing on four key
areas in our digital transformation: enhancing the customer experience;
accelerating product design; improving manufacturing; and
empowering our people. We are supporting the digital transformation
today by supplying backup power for data centres as well as
developing SMR to meet the increasing demand for clean electricity in
the future.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
External environment
OUR BUSINESS
MODEL DRIVERS
OUR UNIQUENESS
OUR COMMON DRIVERS
FOR SUCCESS
WHAT WE
WILL ACHIEVE
OUR CORE DIVISIONS
OUR ROLE
IN SOCIETY
We partner with customers to develop a close understanding of
their needs, co-creating solutions and capabilities. We have
partnered for decades with aircraft manufacturers and airlines,
including joint MRO facilities.
We partner with our supply chain to access capability and
capacity, to maximise market cover, minimise collective investment
and share risk and reward.
NEW GENERATION
WIDEBODY
AIRCRAFT
POWERED BY
ROLLS-ROYCE
4 out of 5
CIVIL AEROSPACE
We make it possible for people to move safely, efficiently and
affordably across the globe.
We provide social and economic value through enabling unique
experiences and in-person relationships; connecting people and
cultures, businesses and families.
Connect
PASSENGERS WHO FLEW
ON A ROLLS-ROYCE
POWERED AIRCRAFT
IN 2024
>350m
We design, develop, manufacture and support high performance
gas turbines for commercial aviation.
We pioneered the industry’s adoption of long-term service
agreements, a model that aligns our interests with those of our
customers and rewards us for improving reliability, availability and
reducing costs.
We provide value to airlines through data driven insights and we
set the standard for customer service in business aviation.
Differentiated services
Trusted partner
ONE ROLLS-ROYCE
Advantaged businesses with strong positions
in attractive and growing markets
A HIGH-PERFORMING, COMPETITIVE,
RESILIENT AND GROWING BUSINESS
CUSTOMERS ON
LONG-TERM
SERVICE
AGREEMENTS
3 out of 5
1
Safety
7
Information & data
2
Compliance
8
Market & financial shock
3
Strategy
9
Political
4
Execution
10
Talent & capability
5
Business interruption
11
Technology
6
Energy transition
Link to risk
Link to risk
1
3
4
6
9
11
Link to risk
1
3
5
6
7
10
11
Link to risk
1
2
3
4
5
6
7
8
9
10
11
14
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Business model
OUR BUSINESS
MODEL DRIVERS
OUR UNIQUENESS
OUR COMMON DRIVERS
FOR SUCCESS
WHAT WE
WILL ACHIEVE
OUR CORE DIVISIONS
OUR ROLE
IN SOCIETY
DEFENCE POWER SYSTEMS
We provide mission critical power and propulsion in the
air, at sea and on land.
We enable operational independence and strategic and
tactical advantage, helping nation states keep their
citizens safe at home and protect their interests
overseas and provide rapid emergency response in the
case of humanitarian disaster.
Protect
Power
PASSENGERS WHO FLEW
ON A ROLLS-ROYCE
POWERED AIRCRAFT
IN 2024
>350m
YEAR S OF
PROVIDING
GAS TURBINE
POWER FOR
DEFENCE
CUSTOMERS
>80
We provide answers to the challenges posed by the
rapidly growing societal demands for energy
and mobility.
We deliver high performance, dependable and
sustainable power, enabling economic growth
and development.
EXPECTED ANNUAL
GROWTH RATE
ACROSS OUR
POWER
GENERATION
MARKETS
>10%
We design, develop, manufacture and support high
performance aero and naval gas turbines and nuclear
power and propulsion systems.
We turn technology into differentiated products that
provide customers with unique capabilities and stay
in-service for decades.
We create broader economic value for the Group by
balancing the volatility seen in commercial markets and
by enabling synergies across technology, infrastructure,
supply chain and product families.
We design, develop, manufacture and support
high-performance reciprocating engines and broader
system solutions for use at sea and on land.
We invent once and use many times, developing
products and product families that can be used in
different applications across multiple markets,
delivering proven solutions for our customers and
maximising the returns on investment to us.
Customer-funded growth
One core solution addressing multiple markets
We deliver unmatched power, reliability and efficiency
in return for premium value.
We are recognised as the engine provider of choice
where the mission matters: high integrity back-up power
for critical infrastructure such as hospitals, airports and
data centres; and high performance propulsion for yachts,
military vehicles and naval vessels.
We support over 160 customers in over 100 countries.
We provide whole engine design, development and
manufacturing capability and operational independence
in the US, UK and Germany and we work closely with
partners in Japan, Italy, Kingdom of Saudi Arabia, India,
Republic of Korea, Australia, Spain, and France.
HOME NATIONS
WITH WHOLE
ENGINE
CAPABILITY
3
Global access, local presence
Structural advantage
DIFFERENT
APPLICATIONS OF
THE AE ENGINE
FAMILY ACROSS
DEFENCE AND
CIVIL MARKETS
>15
ONE ROLLS-ROYCE
Differentiated by deep customer relationships; market leading
products and technology; engineering and commercial excellence
DRIVEN BY COMMITTED EMPOWERED PEOPLE
OPERATING IN A PERFORMANCE CULTURE
UNDERPINNED BY OUR
PURPOSE ANDBEHAVIOURS
NUMBER OF S4000
ENGINES SOLD
ACROSS DIVERSE
MARKETS
60k
MARKET SHARE
IN GOVERNMENTAL
BUSINESS
>30%
Read more about our
strategy on pages 11 to 12
Read more about our
KPIs on pages 16 to 18
Read more about our principal
risks on pages 52 to 60
15
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
BUSINESS MODEL
FINANCIAL PERFORMANCE INDICATORS
1
Order backlog (£bn)
82.1
68.5
222120
24
23
60.2
50.6
52.9
HOW WE DEFINE IT
Total value of firm orders placed by
customers for delivery of products
and services where there is no
right to cancel. This KPI is the same as
the statutory measure for order
backlog. See note 2 on page 142 for
more information.
WHY IT IS IMPORTANT
Order backlog provides visibility of
future business activity.
LINK TO REMUNERATION
Customer orders drive future revenue
growth which, in turn, enables profit and
cash flow growth. Profit and free cash
flow performance are key financial
metrics in the annual Incentive Plan.
Underlying revenue (£m)
17,848
15,409
222120
24
23
12,691
10,947
11,430
HOW WE DEFINE IT
Revenue generated from operations at
the average exchange rate achieved
on effective settled derivative contracts
in the period that the cash flow occurs.
See note 2 on page 138 for more
information.
WHY IT IS IMPORTANT
Underlying revenue provides a measure
of business growth and activity.
LINK TO REMUNERATION
Underlying revenue growth enables profit
and cash flow growth, both of which are
key financial metrics in the annual
Incentive Plan.
Underlying operating profit/(loss) (£m)
2,464
1,590
652
222120
24
23
414
(2,008)
HOW WE DEFINE IT
Operating profit generated from
operations at the average exchange
rate achieved on effective settled
derivative contracts in the period that
the cash flow occurs. It excludes M&A,
exceptional items and certain other
items outside of normal operating
activities. See note 2 on page 138 for
more information.
WHY IT IS IMPORTANT
Underlying operating profit indicates
how the effect of growing revenue and
control of our costs delivers value for
our shareholders.
LINK TO REMUNERATION
Profit is a key financial performance
measure for our annual Incentive Plan.
Underlying operating margin (%)
10.3
5.1
3.8
(17.6)
HOW WE DEFINE IT
Underlying operating profit (as defined
above) as a percentage of underlying
revenue (as defined above). It indicates
how much profit the business makes
for every one pound sterling of
revenue generated.
WHY IT IS IMPORTANT
Underlying operating margin indicates
how effective the business is at
converting revenue to profit. A higher
margin is an indicator of increased value
for our shareholders, as it demonstrates
a higher conversion of revenue to
profit.
LINK TO REMUNERATION
Profit is a key financial performance
measure for our annual Incentive Plan
and LTIP.
Free cash flow (£m)
2,425
1,285
222120
24
23
505
(1,485)
(4,255)
HOW WE DEFINE IT
Free cash flow is cash flows from
operating activities, adjusted to include
capital expenditure and movements in
investments, capital elements of lease
payments, interest paid and to exclude
amounts spent or received on business
acquisitions or disposals, and
exceptional restructuring payments.
Cash flow from operating activities is
our statutory equivalent. See note 28
on page 186�
WHY IT IS IMPORTANT
Free cash flow is a key metric used
to measure the performance of our
business and how effectively we are
creating value for our shareholders.
It enables the business to fund growth,
reduce debt and make shareholder
payments�
LINK TO REMUNERATION
Free cash flow is a key financial metric in
the annual Incentive Plan and LTIP.
1 2023, 2022 and 2021 figures represent the results of continuing operations. 2020 figures
have been restated, where relevant, to show ITP Aero as a discontinued operation in line
with 2021 reporting
A reconciliation from the
alternative performance measure
to its statutory equivalent can be
found on pages 215 to 219
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Key performance indicators
FINANCIAL PERFORMANCE INDICATORS CONTINUED
TCC/GM (ratio)
0.47
0.59
222120
24
23
0.80
0.86
(2.84)
HOW WE DEFINE IT
TCC is defined as total underlying cash
costs during the year (represented by
underlying R&D and underlying C&A)
as a proportion of underlying
gross profit.
WHY IT IS IMPORTANT
This measure provides an indicator of
total cash costs relative to gross profit
(the percentage of the Group’s
overheads that are covered by gross
profit). A reduction in total cash costs
relative to gross profit indicates how
effective the business is at managing
and/or reducing its costs.
LINK TO REMUNERATION
Profit is a key financial performance
measure for our annual Incentive Plan.
Return on capital (%)
2
13.8
11.3
222120
24
23
4.9
3.2
(16.5)
HOW WE DEFINE IT
Return on capital is defined as net
operating profit after tax (NOPAT) as a
percentage of average invested capital.
NOPAT is defined as underlying net
profit excluding net finance costs and
the tax shield on net finance costs.
Invested capital is defined as current
and non-current assets less current
liabilities. It excludes pension assets,
cash and cash equivalents and
borrowings and lease liabilities. See
page 219 for more detail on how we
calculate return on capital.
WHY IT IS IMPORTANT
Return on capital assesses our
efficiency in allocating capital to
profitable investments. The more
efficient we are as a business in
allocating capital to profitable
investments, the more profitable we
will be.
LINK TO REMUNERATION
Profit is a key financial performance
measure for our 2024 LTIP.
Gross R&D expenditure (£m)
1,475
1,390
222120
24
23
1,287
1,179
1,225
HOW WE DEFINE IT
In-year gross cash expenditure on R&D
excludes contributions and fees,
amortisation and impairment of
capitalised costs and amounts
capitalised during the year.
WHY IT IS IMPORTANT
This measure demonstrates the balance
between long-term strategic
investments and delivering short-term
shareholder returns.
LINK TO REMUNERATION
Disciplined control and allocation of R&D
expenditure optimises in-year profit and
cash flow performance without
compromising long-term growth through
innovation. There is a balance of
long-term metrics which reward strong
financial performance and also relative
returns to our shareholders through total
shareholder return (TSR) in the LTIP.
Gross capital expenditure (£m)
519
429
222120
24
23
345
304
585
HOW WE DEFINE IT
In-year gross cash expenditure on
capital excluding capital expenditure
from discontinued operations.
WHY IT IS IMPORTANT
This measure demonstrates the balance
between long-term strategic
investments and delivering short-term
shareholder returns.
LINK TO REMUNERATION
Disciplined control and allocation of
capital expenditure optimises in-year
profit and cash flow performance
without compromising long-term
capital requirements. There is a balance
of long-term metrics which reward strong
financial performance and also relative
returns to our shareholders through total
shareholder return (TSR) in the LTIP.
2 Return on capital has been adjusted for the one-off non-cash impact of £346m related to the net
recognition of deferred tax assets on UK tax losses. See note 5 on page 148 for more details
A reconciliation from the
alternative performance measure
to its statutory equivalent can be
found on pages 215 to 219
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
KEY PERFORMANCE INDICATORS
3 External assurance over the employee engagement score is provided by Bureau Veritas.
See page 211 for their assurance statement
NON-FINANCIAL PERFORMANCE INDICATORS
Safety index (%)
96
232221 24
94
85
74
HOW WE DEFINE IT
The safety index is the leading measure
of our safety culture, which was
introduced across the Group in 2021.
The index consists of a composite score
of five leading indicators with each
indicator measuring a key element of
our safety culture. See page 46 for more
information.
WHY IT IS IMPORTANT
The measure is strongly aligned to our
strategy of safety being the number
one priority with an emphasis on
proactive measures.
LINK TO REMUNERATION
This metric accounts for 2.5% of the
annual Incentive Plan.
Total reportable injuries rate
0.29
232221 24
0.32
0.41
0.43
HOW WE DEFINE IT
This is a measure of total reportable
injuries rate per 100 employees.
WHY IT IS IMPORTANT
This is a standard measure of actual
safety experience which allows us to
benchmark our performance against
external peers and to measure progress
against our ambition to zero harm.
LINK TO REMUNERATION
This metric accounts for 2.5% of the
annual Incentive Plan.
Employee engagement (%)
3
24
78
HOW WE DEFINE IT
We measured engagement using the
Gallup Q12 survey until 2023. During
2024, we transitioned to a new
employee survey, Our Voices, powered
by Qualtrics, that provides insights on
engagement, inclusion and employee
experience relative to our targeted
behaviours. As this is the first year for
Our Voices, we have benchmarked
ourselves against the global
manufacturing index, the mean average
being 75 and the 75th percentile being
81 for 2024.
WHY IT IS IMPORTANT
Our people are crucial to delivering
our strategy. The Our Voices survey is
now the cornerstone of our listening
strategy, providing insights into
employee engagement, culture and
alignment with our strategic objectives.
This is an objective measure of how
engaged our employees are with the
business and the leadership.
LINK TO REMUNERATION
This metric accounts for 5% of the annual
Incentive Plan.
Sustainability
206
19 24 30
143
158
236
146
TARGET
Operations
and facility
Product test
HOW WE DEFINE IT
Total Scope 1 + 2 greenhouse gas
emissions from facilities, operations and
testing, measured in kilotonnes of
carbon dioxide equivalent (ktCO
2
e).
During 2024, we completed the first
phase of a review of our sustainability
strategy and have committed to reduce
these emissions by 46% by the end of
2030, against a 2019 baseline.
WHY IT IS IMPORTANT
The Group is committed to achieving
net zero by 2050 and we support our
customers to do the same. Playing our
part in the energy transition means
reducing energy consumption and
decarbonising operations and product
testing. This will help ensure our
facilities and internal supply chains
remain resilient in a changing external
environment.
LINK TO REMUNERATION
This metric will account for 10% of the
LTIP for awards granted from 2025, with
performance measured against
three-year cumulative targets.
For more information on our
strategic framework, see page 12
For more information on Scope
1+ 2 emissions, see page 34
For more information on the Our
Voices survey, see page 46
18
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
KEY PERFORMANCE INDICATORS
Helen McCabe Chief Financial Officer
The transformation of Rolls-Royce into a high-performing, competitive, resilient and
growing business continues with pace and intensity.
Since I joined Rolls-Royce in mid 2023, I continue to be impressed by
our world-leading capabilities, our talented people and the exciting
opportunities that our iconic company has to offer. I have had the
chance to meet more of our teams in 2024 and visit more of our
operations. It is energising to see first-hand the exceptional work being
done and how everyone is working together as One Rolls-Royce to
unlock our potential.
Our transformation into a high-performing, competitive, resilient and
growing business continues with pace and intensity and everyone in
Rolls-Royce should be proud of all that we have achieved. None of this
would have been possible without the hard work and dedication of our
people�
Building on the achievements of 2023, 2024 has been another year of
strong strategic and financial delivery. Significant progress was made
across each of our key financial metrics. This was underpinned by our
transformation programme. We remained clear on our priorities,
executed with discipline and agility, and drove for simplification and
efficiency. Results demonstrate that our strategy is working. We are
not complacent. There is more we want and need to do, and there is
more to come�
At our Capital Markets Day in 2023, I set out four key priorities as part
of our transformation journey. We have made good progress across
each of these.
1. Integrated performance management
During the year, we made significant changes to our processes and
embedded a stronger culture of integrated financial performance
management across the Group.
Five-year plans are now linked to strategic initiatives which are now
linked to annual budgets which in turn are linked to in-year performance
management. We rigorously track performance and make interventions
proactively. Targets are underpinned and owned across the whole
organisation. We drive for everyone to understand the role they play
in achieving in-year and strategic performance delivery.
These improvements have been enabled by better tools and processes
with, for example, standardised management information that more
timely and accurately tracks our performance against key financial and
strategic metrics.
2. Commercial and cost optimisation
We have embraced a more cost-conscious culture and brought sharper
commercial acumen into our ways of working.
New ways of working, reporting tools and processes have been
introduced to build operational robustness and help support our
people at multiple levels of the organisation. Our new strategy for our
Group Business Services, our internal shared services function, and
the roll out of zero-based budgeting across the Group in 2024, are
prime examples of this.
Our efficiency and simplification programme delivered £350m of
savings by the end of 2024. We now expect to deliver benefits of over
£500m in 2025, above our CMD target of £0.4bn-£0.5bn. This includes
the benefits of our new organisational design, which came into effect
in June. The new design is creating a leaner, more focused organisation
with fewer layers. All of which supported our total cash costs to gross
margin, or TCC/GM ratio, now a best in class ratio.
3. Working capital optimisation
Working capital has continued to be a key focus for Rolls-Royce in
2024, as we navigated a challenging supply chain environment across
all our divisions and looked to build resilience, strengthen our balance
sheet and improve our return on capital.
19
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Financial review
We have worked hard to ensure that we have the right parts available
in the right place and at the right time to mitigate these industry-wide
supply chain challenges. Since the end of 2022, we have improved
inventory days by more than 45 days while also ensuring our end-to-
end processes operate more efficiently.
We have also focused on receivables and payables performance.
Payment terms have been simplified and end-to-end process
fragmentation is being addressed. We have introduced a new dashboard
that tracks overdue debts, leading to more timely and accurate
invoicing. As a result of these initiatives, overdue debt has fallen by
more than 40% since the end of 2022. All these activities have
supported our strong free cash flow delivery and improved resilience.
4. Capital framework
We ended 2024 with a net cash position and reduced gross leverage
through the repayment of a €550m bond. Over the past two years we
have cancelled £3bn of undrawn facilities. Our efforts have been
acknowledged by all three ratings agencies, Fitch Ratings, Moody’s
and S&P, who now hold us at an investment grade rating, with a positive
outlook.
In line with our capital framework, now that the balance sheet is being
strengthened, we are reinstating dividends in respect of the full year
2024. The cash dividend of 6p per share represents a 30% pay-out
ratio of profit after tax and will be paid subject to shareholder approval
at our AGM which will be held on 1 May 2025. We are also pleased to
announce a £1bn share buyback to be completed over the course of
2025. These represent our first dividend in five years and our first
buyback in ten years, significant milestones for Rolls-Royce and our
shareholders, and a further demonstration of the strategic and financial
progress we have made.
As a key priority of our capital framework, we also continued to make
strategic, disciplined investments in 2024, focusing on those that drive
the greatest strategic and shareholder value, while always prioritising
and never compromising on safety. They included, for example,
the £1bn time on wing multi-year investment, investing to create
additional capacity in maintenance, repair and overhaul (MRO) for major
shop visits, and the development of a new reciprocating engine in
Power Systems.
We are still in the early stages of our transformation journey. There is
more we need and want to do. These four priorities will remain in 2025
as we continue to build a high-performing, competitive, resilient and
growing business.
2024 financial performance
2024 has been another year of strong strategic and financial delivery,
building on our 2023 performance. Across these two years we have
driven significantly improved performance: underlying operating profit
has increased by £1.8bn to £2.5bn, operating margin by 8.7pts to 13.8%,
free cash flow by £1.9bn to £2.4bn and return on capital has improved
by 8.9pts to 13.8%.
—
Significantly growing operating margins: Underlying operating profit
rose from £1.6bn in 2023 to £2.5bn in 2024, a 57% increase compared
to the prior year, driven by our strategic initiatives including
commercial optimisation and cost efficiency benefits across the
Group. This was achieved despite ongoing supply chain challenges.
Civil Aerospace’s operating margin rose to 16.6% (2023: 11.6%), driven
by higher widebody aftermarket profit, stronger performance in
business aviation and net contractual margin improvements. Defence
delivered an operating margin of 14.2% (2023: 13.8%), with higher
operating profit driven by stronger aftermarket performance
alongside submarines growth. Power Systems delivered an operating
margin of 13.1% (2023: 10.4%), primarily driven by stronger
performance in power generation, supported by our business
interventions. Delivery across all divisions has been supported by
our cost efficiency actions.
—
Growing and sustainable cash flows: Strong free cash flow of £2.4bn
(2023: £1.3bn) was achieved despite a challenging supply chain
environment. This was driven by strong operating profit and
continued net long-term service agreement (LTSA) balance growth,
alongside a working capital release and higher net investments in
the year. Civil Aerospace LTSA balance growth net of risk and
revenue sharing arrangements (RRSAs) of £0.7bn (2023: £1.1bn) was
supported by higher large engine flying hours (EFH) at 103% of 2019
levels (2023: 88%) and an improved EFH rate, partly offset by higher
shop visits. Working capital was an inflow of £280m, compared to an
outflow of £356m in the prior year. Since 2022, we have increased
our net investments by £0.5bn and our working capital programme
has helped to drive more than a 45 day improvement in inventory
days and a 14 day improvement in days sales outstanding with more
than a 40% decrease in overdue debt.
— Strengthening our balance sheet and building resilience: Net cash
stood at £475m at the end of 2024. This compares to a £2.0bn net
debt position at the end of 2023. Gross debt was reduced by
repaying a €550 million bond, and the remaining £1bn UK Export
Finance (UKEF) supported undrawn loan facility was cancelled, both
enabled by our growing and more resilient cash delivery. Liquidity
remained robust at £8.1bn on 31 December 2024 (2023: £7.2bn). Our
efforts to strengthen the balance sheet were recognised by all three
credit ratings agencies, who rate us at investment grade with a
positive outlook. In addition, the operating resilience of the Group
has been improved. Total underlying cash costs as a proportion of
underlying gross margin (TCC/GM) at year end was a best in class
ratio of 0.47x (2023: 0.59x). We are creating a more robust and less
volatile free cash flow delivery that is more resilient to the external
environment.
—
Shareholder distributions: In line with our capital framework, now
that the balance sheet is being strengthened, we are reinstating
shareholder dividends in respect of the full year 2024. The cash
dividend of 6p per share represents a 30% pay-out ratio of
underlying profit after tax
1
and will be paid subject to shareholder
approval at our AGM on 1 May 2025. We are also pleased to announce
a £1bn share buyback to be completed over the course of 2025.
2025 outlook
Our guidance for underlying operating profit and free cash flow for
the full year 2025 demonstrates continued strong strategic progress.
Our 2025 guidance sees us delivering the Capital Markets Day targets
for 2027 two years earlier than planned. Our forecast for 2025
underlying operating profit is £2.7bn-£2.9bn and free cash flow between
£2.7bn-£2.9bn.
Upgraded mid-term targets
Our strong delivery in 2023 and 2024 gives us confidence to upgrade
our mid-term targets to 2028. Underlying operating profit is expected
to increase from £2.5bn in 2024 to £3.6bn-£3.9bn in the mid-term and
underlying operating margin to increase from 13.8% to 15%-17%. These
targets are significantly underpinned by our actions, investments and
strategic initiatives, including the benefits of efficiency and
simplification across the Group.
—
Civil Aerospace: We target an 18%-20% margin in the mid-term (2024:
16.6%). Higher operating profit will be driven by improved large engine
LTSA aftermarket performance, with higher LTSA margins reflecting
the benefits of our six levers (extending time on wing, lowering shop
visit costs, reducing product costs, keeping engines earning,
implementing value-driven pricing, and continuing to drive rigour on
contractual terms and conditions). We expect improved large engine
OE profitability, both in installed and spare engines, alongside further
improvements in business aviation performance. These benefits will
be partly offset by a reduced contribution from contractual margin
improvements, as we anticipate completing the majority of our
remaining onerous contract renegotiations in 2025 and 2026.
1 In 2024, the Group recognised a net £346m credit to underlying profit after tax (PAT),
primarily in respect of deferred tax assets on UK tax losses. This £346m credit has been
adjusted in the calculation of the proposed dividend per share. For further details, see
note 5, page 148
20
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL REVIEW
— Defence: We target a 14%-16% margin in the mid-term (2024: 14.2%).
Higher operating profit will be driven by stronger OE and
aftermarket performance, reflecting commercial optimisation
benefits supported by our actions taken over the past two years.
These benefits will be partly offset by the impact of divestments.
— Power Systems: We target a 14%-16% margin in the mid-term (2024:
13.1%). Higher operating profit will be driven principally by power
generation, as we continue to capture profitable growth in the data
centre market, alongside governmental, and BESS which we aim to
be profitable in the near-term. We also expect continued growth in
our marine and industrial businesses.
Free cash flow of £4.2bn-£4.5bn in the mid-term compares to £2.4bn
in 2024. The improvement will be driven by higher operating profit
alongside a continued benefit in Civil Aerospace net LTSA balance
growth at the upper end of the £0.8bn to £1.2bn guided range. LTSA
balance growth reflects growing large EFH to 130%-140% of 2019
levels, and our deliberate actions including driving a higher EFH rate,
the benefits of our time on wing initiatives with total shop visits of
1,250-1,350 by the mid-term, alongside continued business aviation
growth. Our mid-term targets assume a forecast achieved foreign
exchange rate of $1.31/£ in 2028. Our profit growth will lead to a higher
cash tax cost.
We continue to expect a progressive, but not necessarily linear,
improvement year-on-year in underlying operating profit and free cash
flow to 2028. The performance improvements that underpin these
targets and the actions required to deliver them are owned across the
Group and supported through rigorous performance management.
Helen McCabe
Chief Financial Officer
0.65
1.6
3.6-3.9
2.5
23 2422
Mid-term
target
5.1
10.3
13.8
23 2422
Mid-term
target
15-17
0.5
1.3
2.4
23 2422
Mid-term
target
4.2-4.5
4.9
11.3
13.8
23 2422
Mid-term
target
18-21
Operating profit (£bn)
Free cash flow (£bn)Operating margin (%) Return on capital (%)
Our mid-term targets shared at our Capital Markets Day (CMD) in 2023 represented a step change in ambition. We continue to build on our
world-class engineering heritage to deliver a winning investment proposition.
We defined the mid-term as a 2027 timeframe and our guided 2025 operating profit and free cash flow are within the CMD mid-term target
ranges two years earlier than planned. This shows that we have materially increased the potential of the business. We have, therefore,
upgraded our mid-term targets, as shown below, based on a 2028 timeframe.
The upgraded mid-term targets are a milestone rather than a destination and we see strong growth, earnings expansion and cash flow
potential beyond this timeframe. This is discussed in detail in the Chief Executive’s review on pages 6 to 9.
GROUP MID-TERM TARGETS
21
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
FINANCIAL REVIEW
All underlying income statement commentary is provided on an organic
basis unless otherwise stated.
Revenue: Underlying revenue of £17.8bn was up 17%, with
double-digit growth in all three core divisions, notably Civil Aerospace.
Statutory revenue of £18.9bn was 15% higher compared with 2023. The
difference between statutory and underlying revenue is driven by
statutory revenue being measured at average prevailing exchange
rates (2024: GBP:USD 1.28; 2023: GBP:USD 1.24) and underlying revenue
being measured at the hedge book achieved rate during the year (2024:
GBP:USD 1.48; 2023: GBP:USD 1.50).
Operating profit: Underlying operating profit of £2.5bn (13.8%
margin) versus £1.6bn (10.3% margin) in the prior year. Underlying
operating profit was higher in all three core divisions, driven by
strategic initiatives including commercial optimisation and cost efficiency
benefits across the Group. The largest year on year improvement in
margins was in Civil Aerospace, driven by higher large engine
aftermarket, net contractual improvements, and business aviation
profits. Defence and Power Systems margins also rose materially.
Statutory operating profit was £2.9bn, higher than the £2.5bn
underlying operating profit largely due to a £545m impairment
reversal related to a Civil Aerospace programme asset impairment that
was recognised in 2020 and £191m negative impact from currency
hedges in the underlying results. Charges of £294m were excluded
from the underlying results as these related to non-underlying items
comprising net transformation and restructuring charges of £234m;
£45m relating to the amortisation of intangible assets arising on
previous acquisitions; £14m pension past service credit; and £1m of
other credits.
Profit before taxation: Underlying profit before taxation of £2.3bn
included £(171)m net financing costs comprising £266m interest
receivable, £(273)m interest payable and £(164)m of other financing
charges and costs of undrawn facilities. Statutory profit before tax of
£2.2bn included £(609)m net fair value losses on derivative contracts,
£(93)m net interest payable, net foreign exchange gains of £190m and
£(176)m other financing charges and costs of undrawn facilities.
Taxation: Underlying tax charge of £(282)m (2023: £(120)m) reflects an
overall tax charge on profits of Group companies as well as a tax charge
of £(102)m on a de-grouping gain in the UK, a tax charge of £(162)m on
de-recognition of the deferred tax asset relating to advance
corporation tax and a tax credit of £508m relating to the recognition
of some of the deferred tax asset on UK tax losses. These are reflected
in the statutory tax credit of £250m (2023: tax charge £(23)m) which
also includes an additional tax credit on the recognition of a £525m
deferred tax asset relating to UK tax losses, a £10m tax credit related
to the reduction in the UK tax rate on authorised pension surpluses, a
tax credit of £57m related to unrealised foreign exchange derivatives
and a £(60)m tax charge related to other non-underlying items.
Statutory and underlying Group financial performance
2024 2023
£ million Statutory
Impact of
hedge
book
1
Impact of
acquisition
accounting
Impact of
other
non-
underlying
items Underlying Underlying
Revenue 18,909 (1,061) – – 17,848 15,409
Gross profit 4,221 (186) 43 13 4,091 3,231
Operating profit 2,906 (191) 45 (296) 2,464 1,590
Gain arising on disposal of businesses 16 – – (16) – –
Profit before financing and taxation 2,922 (191) 45 (312) 2,464 1,590
Net financing (costs)/income (688) 419 – 98 (171) (328)
Profit before taxation 2,234 228 45 (214) 2,293 1,262
Taxation
2
250 (57) (11) (464) (282) (120)
Profit for the year 2,484 171 34 (678) 2,011 1,142
Basic earnings per share (pence)
3
30.05 20.29 13.75
1 Reflecting the impact of measuring revenue and costs at the average exchange rate during the year and the valuation of assets and liabilities using the year end exchange rate rather than
the rate achieved on settled foreign exchange contracts in the year or the rate expected to be achieved by the use of the hedge book
2 Statutory taxation includes the recognition of a deferred tax asset on UK tax losses of £1,033m (of which £508m is included in underlying) and the de-recognition of the deferred tax asset
relating to advance corporation tax of £(162)m (of which £(162)m is included in underlying), see note 5, page 148 for further details)
3 In 2024, the underlying profit attributable to ordinary shareholders has been adjusted for the one-off non-cash impact of £346m related to the net recognition of deferred tax assets on
UK tax losses, see note 5, page 148 for further details
22
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL REVIEW
Free cash flow
2024 2023
£ million Cash flow
Impact of
hedge
book
Impact of
acquisition
accounting
Impact of
other non-
underlying
items Funds flow Funds flow
Operating profit 2,906 (191) 45 (296) 2,464 1,590
Depreciation, amortisation and impairment 543 – (45) 355 853 978
Movement in provisions (56) (56) – (55) (167) (258)
Movement in Civil Aerospace LTSA balance 1,193 (283) – – 910 1,331
Movement in RRSA prepayments for LTSA parts (348) 129 – – (219) (252)
Movement in cost to obtain contracts (19) 1 – – (18) (40)
Settlement of excess derivatives (146) – – – (146) (389)
Interest received 269 – – – 269 159
Other operating cash flows
1
61 (5) – (13) 43 (68)
Operating cash flow before working capital and income tax 4,403 (405) – (9) 3,989 3,051
Working capital
2
436 (271) – 115 280 (356)
Cash flows on other financial assets and liabilities held for operating
purposes (676) 652 – – (24) 8
Income tax (381) – – – (381) (172)
Cash from operating activities 3,782 (24) – 106 3,864 2,531
Capital element of lease payments (299) 24 – – (275) (270)
Capital expenditure (876) – – – (876) (695)
Investments 16 – – – 16 69
Interest paid (298) – – – (298) (333)
Other 100 – – (106) (6) (17)
Free cash flow 2,425 – – – 2,425 1,285
1 Other operating cash flows includes profit/(loss) on disposal, share of results and dividends received from joint ventures and associates, flows relating to our defined benefit
post-retirement schemes, and share based payments
2 Working capital includes inventory, trade and other receivables and payables, and contract assets and liabilities (excluding Civil Aerospace LTSA balances, prepayment to RRSAs and costs
to obtain contracts). Working capital was previously defined as inventory, trade and other receivables and payables, and contract assets and liabilities, excluding Civil Aerospace LTSA
balances
Free cash flow in the year was £2.4bn, an improvement of £1.1bn
compared with the prior year driven by:
Underlying operating profit of £2.5bn, £874m higher than the prior
year. This reflects improved underlying operating profit and margins
in all three core divisions, notably Civil Aerospace.
Movement in provisions of £(167)m driven by movements across several
provisions, including contract losses, warranty and guarantees, Trent
1000 and transformation and restructuring.
Movement in Civil Aerospace LTSA balance was £910m, lower than the
prior year £1,331m, due to higher invoiced revenue driven by higher
EFH, offset by higher traded revenue as a result of volume and mix of
shop visits, and catch-ups of £(311)m in 2024 compared with £104m in
prior year.
Movement in RRSA prepayments for LTSA parts of £(219)m (2023:
£(252)m). The movement corresponds to the movement seen in the Civil
Aerospace LTSA balance above. RRSA prepayments typically move in
line with the Civil Aerospace LTSA balance as the RRSA prepayment
represents amounts that we have paid to Risk and Revenue Share
Partners for the parts that they will ultimately provide in support of our
contracts.
Working capital inflow of £280m, compared to an outflow of £356m in
the prior year. A net £603m inflow from receivables, payables and
contract liabilities, reflecting the benefits from our working capital
initiatives was partly offset by a £(323)m increase in inventory to meet
growing demand.
Income tax of £(381)m, net cash tax payments for 2024 were higher
than the prior year (£(172)m) due to timing of payments.
Capital expenditure of £(876)m, includes £(519)m of property, plant and
equipment additions and £(367)m of intangibles additions. The combined
additions were higher than the prior year as a result of investment
across the Group to support strategic growth and safety.
Interest paid of £(298)m, including lease interest payments and fees on
undrawn facilities, reduced by £35m primarily as a result of the
termination of a £1bn UKEF-supported loan facility and £1bn term loan
in 2023�
23
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
FINANCIAL REVIEW
Balance sheet
£ million 2024 2023 Change
Intangible assets 4,402 4,009 393
Property, plant and equipment 3,724 3,728 (4)
Right-of-use assets 761 905 (144)
Joint ventures and associates 592 479 113
Civil Aerospace LTSA
1
(10,184) (9,080) (1,104)
RRSA prepayments for LTSA parts
1
1,668 1,320 348
Costs to obtain contracts
1
135 116 19
Working capital
1
(1,731) (1,502) (229)
Provisions (1,994) (2,029) 35
Net cash/(debt)
2
475 (1,952) 2,427
Net financial assets and liabilities
2
(1,980) (2,060) 80
Net post-retirement scheme deficits (191) (253) 62
Taxation 3,383 2,605 778
Assets and liabilities held for sale
3
53 54 (1)
Other net assets and liabilities 6 31 (25)
Net liabilities (881) (3,629) 2,748
Other items
US$ hedge book (US$bn) 19 15
1 The total of these lines represent inventory, trade receivables and payables, contract assets and liabilities and other assets and liabilities in the statutory balance sheet
2 Net cash includes £33m (2023: £23m) 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
3 Assets and liabilities held for sale relate to the sale of the naval propulsors & handling business. During the year, the Group disposed of part of Power Systems’ lower power range engines
business that was held for sale in 2023
Key drivers of balance sheet movements were:
Intangible assets: The £393m increase is largely the result of an
impairment reversal related to a Civil Aerospace programme asset
impairment that was recognised in 2020.
Civil Aerospace LTSA: The £(1.1)bn movement in the net liability balance
was mainly driven by an increase in invoiced LTSA receipts exceeding
revenue recognised in the year. This is especially prevalent on new
contracts where shop visits are not immediately scheduled.
RRSA prepayments for LTSA parts: The £348m increase corresponds
to the increase seen in the Civil Aerospace LTSA balance above. RRSA
prepayments typically move in line with the Civil Aerospace LTSA
balance as the RRSA prepayment represents amounts that we have
paid to Risk and Revenue Share Partners for the parts that they will
ultimately provide in support of our contracts.
Working capital: The £(1.7)bn net working capital position increased
by £(229)m compared to the prior year. This £(229)m movement reflected
higher sales volumes and supply chain disruption, along with changes
in operational volumes and timing of supplier payments.
Net cash/(debt): Increased to £475m from £(2.0)bn driven by a free
cash inflow of £2.4bn. Our liquidity position is strong with £8.1bn of
liquidity including cash and cash equivalents of £5.6bn and undrawn
facilities of £2.5bn. During the year, the Group repaid a €550m bond
in line with its maturity date. Net cash included £(1.6)bn of lease
liabilities (2023: £(1.7)bn).
Taxation: The net tax asset increased by £778m. The increase largely
relates to the recognition of a deferred tax asset relating to UK tax
losses of £1,033m, this is partially offset by a reduction in UK deferred
tax assets of £(171)m due to the utilisation of UK tax losses and reliefs
and the de-recognition of the deferred tax asset relating to UK advance
corporation tax of £(162)m. Non-UK deferred tax assets have reduced
by £(38)m. Deferred tax liabilities have decreased by £99m, mainly due
to a reduction in the UK tax rate applied to authorised pension surpluses
and net current tax liabilities have also decreased by £17m.
24
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL REVIEW
Market overview
Civil Aerospace has two main areas of focus – large engine production,
based in Derby, UK and business aviation, headquartered in Dahlewitz,
Germany. We have 13,800 in-service engines and power four out of
five of the new generation widebody engine aircraft.
In 2024, we saw a strong intake of orders and as such our large engine
order book increased by 13% to 1,843 engines at the end of the year.
A total of 494 large engines were ordered with a gross book-to-bill of
1.8x. Significant new orders included IndiGo, Cathay Pacific, Korean
Air and Delta, alongside an order for Trent 1000 engines from El Al. We
also made 278 total large engine deliveries during 2024, an increase
on the previous year (2023: 262). 57 of these deliveries were large spare
engines (2023: 53), helping to support fleet health and resilience.
Our market share of the widebody installed base has grown from 32%
at the end of 2022 to 36% at the end of 2024, supported by our market
share of more than 50% of new engine deliveries over the past two
years�
Business aviation engine deliveries also increased in 2024 to 251 (2023:
196). At present there are over 7,300 in-service Rolls-Royce business
aviation engines across our Pearl, Tay, BR710, BR725 and AE 3007
families which provide power to a range of platforms, including
Gulfstream and Bombardier aircraft. There are over 1,400 BR725 and
Pearl engines in service which power the Gulfstream G650/G650ER/
G700 and Bombardier Global 5500/6500. In October, the Pearl 10X
successfully completed its flying test bed campaign, an important
milestone in the Falcon 10X flight test programme ahead of its entry
into service. In 2024, Gulfstream delivered the first G700 aircraft
powered by our Pearl 700 engines.
Large engine flying hours rose by 17% compared to the prior year to
103% of 2019 levels, driven by continued strong demand for travel and
our growing installed widebody engine fleet. Business aviation and
regional engine flying hours were unchanged compared to 2023.
Our Trent XWB family of engines passed the 20 million flying hours
mark in October, after entering into service in 2015. In a further
milestone, the Trent 1000 also celebrated 20 million flying hours in
December. Providing power for the Boeing 787 Dreamliner, this engine
is also on track for further improvements to engine performance which
will more than double the time on wing of this engine.
In 2024, we saw higher shop visit volumes, as expected. These are
required to maintain and repair our growing installed engine fleet. The
supply chain environment remains challenging. Reflecting this, we have
booked additional charges in 2024. However, we continue to work with
focus and intensity across our supply chain to support growing OE and
aftermarket volumes.
We have invested to grow capacity in Derby, UK, Dahlewitz, Germany,
and Singapore. This will allow us to deliver more new engines, and by
the end of this year, perform an additional 50% shop visits compared
to 2023 to support rising aftermarket volumes.
Financial performance
Underlying revenue of £9.0bn increased by 24%, driven by higher shop
visit volumes and mix, OE engine deliveries and commercial
optimisation. Underlying OE revenue grew by 16% in the year to £3.1bn
and services revenue grew by 28% to £5.9bn. LTSA revenue
catch-ups were £311m (2023: £(104)m).
Underlying operating profit was £1.5bn (16.6% margin) versus £850m in
2023 (11.6% margin). Higher underlying operating profit reflected improved
large engine aftermarket performance. This was primarily driven by
improved LTSA profit, higher shop visit volumes, and increased time and
materials profit. In addition, business aviation performance improved
with higher OE and aftermarket profit. Higher underlying operating profit
across large engines and business aviation also reflected the benefits of
net contractual margin improvements as well as cost efficiency benefits.
Our efforts to improve the commercial terms and reduce costs across
our large engine and business aviation contracts supported total
Civil Aerospace is a major manufacturer of aero engines for the large commercial aircraft, regional jets
and business aviation markets. The division uses its engineering expertise, in-depth knowledge and
capabilities to provide through-life service solutions for its customers.
Underlying revenue mix Underlying revenue mix by sector
OE – 34%
Services – 66%
Large engines – 72%
Business aviation – 22%
Regional – 2%
V2500 – 4%
UNDERLYING REVENUE UNDERLYING OPERATING PROFIT UNDERLYING OPERATING MARGIN ORDER BACKLOG
£9,040m
2023: £7,348m
£1,505m
2023: £850m
16.6%
2023: 11.6%
£59.9bn
2023: £55.2bn
CIVIL AEROSPACE
25
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Our divisions
contractual margin improvements of £617m in the year. These benefits
were partially offset by £382m of additional charges largely associated
with the impact of prolonged supply chain challenges, which were
booked across onerous provisions and contract catch-ups. As a result,
net contractual margin improvements were £235m (2023: £(54)m),
comprising contract catch-ups of £290m (2023: £(29)m) and net
onerous provision charges of £(55)m (2023: £(25)m).
Trading cash flow of £2.0bn (2023: £626m) reflected strong operating
profit, continued LTSA balance growth, and a working capital release,
partly offset by higher net investments in the year. Civil Aerospace net
LTSA balance growth net of RRSAs of £0.7bn in the year (2023: £1.1bn)
was supported by higher large engine flying hours (EFH), and an
improved EFH rate, with LTSA invoiced flying hour receipts of £5.5bn
(2023: £4.6bn). This was partly offset by a higher number of shop visits,
including a significant increase in Trent 1000 major refurbishments.
Operational and strategic progress
We continue to focus on six key levers to unlock value in Civil Aerospace:
extend time on wing; lower shop visit costs; reduce product costs; keep
engines earning for longer; implement value-based pricing; and drive
contractual rigour. We have made excellent progress against these
initiatives with commercial and cost disciplines also being applied to
all areas of our business too.
Extending time on wing means our engines stay in service for longer
periods between shop visits, reducing the lifetime maintenance cost. At
our Capital Markets Day we set out a mid-term target to improve the time
on wing of our in-production engines by an average of 40%. Thanks to
further initiatives, we now expect to improve this by an average of more
than 80%. A significant portion will be delivered by the end of 2025.
We believe we are well positioned to re-enter the narrowbody market by
choosing a partnership approach for the next engine programme when
the time is right. Our UltraFan technology is a vital step towards this. Where
appropriate, we will retrofit UltraFan technologies into our existing Trent
fleet to increase time on wing, reduce cost and further increase efficiency.
The transition to lower carbon energy and the reduction of emissions
in our markets is of paramount importance. Ensuring the maximum
efficiency of our current fleet is a vital first step, as many of these
engines will remain in service for decades to come. All of our
in-production civil aero engines have been proven to be 100%
compatible with sustainable aviation fuels. This year we saw another
step towards greater efficiency with the certification of our XWB-84 EP
variant, which when it enters into service in 2025 will deliver a 1% fuel
efficiency improvement, as well as improving its durability and
reducing CO
2
emissions�
Outlook
We expect 2025 large EFH will grow to 110%-115% of 2019 levels and to
130%-140% by the mid-term. We target an 18%-20% margin in the
mid-term (2024: 16.6%). Higher operating profit will be driven by
improved large engine LTSA aftermarket performance, with higher LTSA
margins reflecting the benefits of our six levers (extending time on wing,
lowering shop visit costs, reducing product costs, keeping engines
earning, implementing value-driven pricing, and continuing to drive
rigour on contractual terms and conditions). We expect improved large
engine OE profitability, both in installed and spare engines, alongside
further improvements in business aviation performance. These benefits
will be partly offset by a reduced contribution from contractual margin
improvements, as we anticipate completing the majority of our
remaining onerous contract renegotiations in 2025 and 2026.
Beyond the mid-term, we are strategically positioned to continue to
outgrow the market in widebody and business aviation due to our strong
positions on leading platforms, with UltraFan uniquely placed for the
next generation of narrowbody and widebody aircraft. Rising LTSA
margins will be supported by the full benefit of our strategic initiatives,
notably contract renegotiations, value-based pricing on new and
renewing contracts, lower shop visit costs and our time on wing
programme that will drive a lower number of shop visits. We also expect
improving OE profitability, reflecting the full benefits of our commercial
optimisation and efficiency actions, alongside a further strengthening
in business aviation performance.
Financial overview
£ million 2024
Organic
change
1
FX 2023 Change
Organic
change
1
Underlying revenue 9,040 1,753 (61) 7,348 1,692 24%
Underlying OE revenue 3,105 431 (29) 2,703 402 16%
Underlying services revenue 5,935 1,322 (32) 4,645 1,290 28%
Underlying gross profit 1,990 617 (21) 1,394 596 44%
Gross margin % 22.0% 19.0% +3�1pt
Commercial and administrative costs (396) (44) 2 (354) (42) 12%
Research and development costs (252) 88 3 (343) 91 (26)%
Joint ventures and associates 163 11 (1) 153 10 7%
Underlying operating profit 1,505 672 (17) 850 655 79%
Underlying operating margin % 16.6% 11.6% +5�1pt
2024 2023 Change
Trading cash flow 2,030 626 1,404
Key operational metrics
2024 2023 Change
Large engine deliveries 278 262 6%
Business aviation engine deliveries 251 196 28%
Total engine deliveries 529 458 16%
Large engine LTSA flying hours (million) 15.8 13�5 17%
Large engine LTSA major refurbs 430 368 17%
Large engine LTSA check & repair 473 471 0%
Total large engine LTSA shop visits 903 839 8%
1 Organic change is the measure of change at constant translational currency applying full year 2023 average rates to 2024. All underlying income statement commentary is provided on
an organic basis unless otherwise stated
26
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OUR DIVISIONS
Defence is a market leader in aero engines for military transport and patrol aircraft with strong positions
in combat applications. It has significant scale in naval and also designs, supplies and supports the
nuclear propulsion plant for all of the UK Royal Navy’s nuclear submarines.
Underlying revenue mix Underlying revenue mix by sector
OE – 43%
Services – 57%
Transport – 28%
Combat – 31%
Submarines – 30%
Naval – 7%
Helicopters – 4%
Market overview
Our Defence business supports five distinct end markets: transport,
where we are the market leader; combat, where we have full engine
capability; submarines, where we have unique nuclear propulsion
capability; naval, where our high power density engines bring real
advantage; and helicopters, where we have accumulated significant
experience in military and civil programmes.
Demand across our Defence business remained very strong in 2024,
with an order intake of £13.3bn in the year and a book-to-bill ratio of
2.9x, including an eight-year submarines contract worth c.£9bn with
the UK Ministry of Defence. This order combines several current and
upcoming contracts and underscores our unique nuclear
capability. Our order backlog at the end of the year was £17.4bn, with
an order cover of 90% for 2025.
In light of ongoing security concerns around the world, governments
have increased their commitment to defence budgets. We have been
selected as long-term partners in the development, manufacture and
maintenance of defence power for critical military missions to deter
threats, preserve life and maintain order.
We provide power for our defence customers. We are a trusted and
key supplier and are chosen for our unrivalled engineering and
technological capabilities as we push the boundaries of what is
possible and provide our customers with cutting-edge solutions.
Rolls-Royce does not provide or manufacture weapons for our
customers�
Our Defence market remains resilient and our customers continue to
invest in capability in our core markets. £45bn of new programmes will
come online by 2050 within the transport and patrol market, creating
substantial opportunities for us, and we are very well positioned to
capture a significant portion of these emerging opportunities.
Financial performance
Revenue increased by 13%
1
to £4.5bn (2023: £4.1bn). Growth was led
by submarines which reported growth of 53%
1
while transport and
combat were broadly flat, as the supply chain constrained OE volumes.
Total OE revenues grew by 11% versus last year to £1.9bn driven by
increased submarines volumes, including the ramp up of the AUKUS
programme. Services revenues grew by 13% to £2.6bn
1
supported by
a more favourable shop visit mix and improved pricing.
Operating profit grew by 16% to £644m (2023: £562m), with an
operating margin of 14.2% (2023: 13.8%), despite a challenged supply
chain environment which constrained OE deliveries. Profit growth was
driven by stronger aftermarket performance, led by transport,
reflecting our commercial optimisation efforts and a more favourable
mix. Submarines growth was also strong. In addition, higher operating
profit was supported by cost efficiency benefits.
Trading cash flow of £591m increased versus £511m last year, driven by
higher underlying operating profit alongside the continued tight
management of working capital.
Operational and strategic progress
We remain focused on the combat, transport and submarines sectors
as areas where we are differentiated and strategically advantaged. We
continue to improve our position through strong performance
management, commercial optimisation and efficiency savings.
In 2024, we made strong progress on the B-52 Commercial Engine
Replacement Program. We completed Rapid Twin Pod Testing to
support the platform’s unique nacelle configuration and then began
sea-level testing for the F130 First Engine to Test (FETT). The programme
also successfully completed the F130 Engine Critical Design Review
on schedule. With the ramp-up of the B-52 programme, we expect to
increase production of our combat portfolio to over 100 engines per
year by the early 2030s.
UNDERLYING REVENUE UNDERLYING OPERATING PROFIT UNDERLYING OPERATING MARGIN ORDER BACKLOG
£4,522m
2023: £4,077m
£644m
2023: £562m
14.2%
2023: 13.8%
£17.4bn
2023: £9.2bn
DEFENCE
1 Defence services revenues includes a c.£220m benefit of a one-off capital and lease
transaction. Excluding this, Defence revenue growth was 7% and submarines revenue
growth was 29%
27
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
OUR DIVISIONS
We continue to make progress on our involvement in the Global
Combat Air Programme (GCAP), working closely with our international
partners to develop a next-generation combat aircraft that will provide
critical power to our armed forces customers globally. The opening of
our FutureWorks facility in Bristol is an example of how we remain at
the forefront of revolutionising aerospace manufacturing and skills.
We were also selected as part of the team to partner with prime
contractor SNC, that is supporting the Survivable Airborne Operations
Center (SAOC) recapitalisation programme for the United States Air
Force. The SAOC aircraft provides top military leaders with a highly
survivable command, control and communications platform to direct
US forces in the midst of a potential national emergency.
We were selected to partner with Northrop Grumman on the US Navy’s
E-130J. With four Indianapolis-built AE 2100 engines on each aircraft,
Rolls-Royce will provide proven, dependable power to the US nuclear
triad and play a key role in protecting US national security.
As referenced previously, we signed an eight-year contract with the
UK Ministry of Defence, worth approximately £9bn, which brings
together all elements of research and technology, design, manufacture
and in-service support of the nuclear reactors that power the Royal
Navy’s fleet of submarines. This is the largest contract Rolls-Royce has
ever signed with UK Ministry of Defence.
Additionally, 2024 saw us commence manufacturing parts for
SSN-AUKUS boats, with long-lead components currently being worked
on in our manufacturing facility. We successfully opened the 13,000m
2
warehousing facility, named Derwent Park, which sits behind our
Raynesway site in Derby, UK. We also opened a satellite site in Glasgow,
with an additional site in Cardiff nearing completion. Both sites will
generate over 200 new jobs for the regions.
In transport, the Future Long Range Assault Aircraft (FLRAA) programme
for the US Army entered the Engineering and Manufacturing
Development (EMD) phase of the acquisition process in August. This is
the final phase before production commences.
In relation to investment priorities, we take a focused view on where
and how to invest and utilise customer funding for product
development. We are aligned with the Group investment priorities
framework, which ensures that capital is only allocated to the most
strategic projects. We have also been clear about where we do not
want to further invest. In September, we agreed to sell our naval
propulsors & handling business to Fairbanks Morse Defense.
Our financial results demonstrate that we are making progress on cost
management as we embrace the Group-wide transformation activities
and strive for a sustainably reduced cost base in the mid-term
and beyond.
The transition to net zero is a key priority for Defence and we support
our customers in their efforts. We believe that decarbonisation via
synthetic fuels, which can deliver a reduction in lifecycle carbon
emissions compared to fossil fuels, is currently the best solution. Our
micro-reactors can also play a big part in helping energy security and
resilience as part of the energy transition.
Outlook
We target a 14%-16% margin in the mid-term (2024: 14.2%). Higher
operating profit will be driven by stronger OE and aftermarket
performance, reflecting commercial optimisation benefits supported
by our actions taken over the past two years. These benefits will be
partly offset by the impact of divestments.
Beyond the mid-term, growth will be driven by new platforms, which
will ramp up from 2029 and remain in service for decades to come.
These include AUKUS, B-52, Future Long-Range Assault Aircraft (FLRAA),
Global Combat Air Programme (GCAP) and MQ-25. Furthermore, we
anticipate extended demand for our existing profitable portfolio of
products.
Financial overview
£ million 2024
Organic
change
1
FX 2023 Change
Organic
change
1
Underlying revenue 4,522 511 (66) 4,077 445 13%
Underlying OE revenue 1,943 201 (24) 1,766 177 11%
Underlying services revenue 2,579 310 (42) 2,311 268 13%
Underlying gross profit 908 116 (12) 804 104 14%
Gross margin % 20.1% 19.7% +0�4pt
Commercial and administrative costs (212) (42) 3 (173) (39) 24%
Research and development costs (55) 17 – (72) 17 (24)%
Joint ventures and associates 3 – – 3 – –
Underlying operating profit 644 91 (9) 562 82 16%
Underlying operating margin % 14.2% 13.8% +0�4pt
2024 2023 Change
Trading cash flow 591 511 80
1 Organic change is the measure of change at constant translational currency applying full year 2023 average rates to 2024. All underlying income statement commentary is provided on
an organic basis unless otherwise stated
28
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OUR DIVISIONS
Power Systems, with its product and solutions brand mtu, is a world-leading provider of integrated
solutionsfor onsite power and propulsion, developing sustainable solutions to meet the needs of
itscustomers.
OUR DIVISIONS
Market overview
Our Power Systems business serves five distinct end markets.
In power generation, we offer dependable diesel and gas power
solutions for mission-critical to everyday backup and continuous power
needs. We have a growing market share of 20%-25% and our key
markets are data centres and industrial manufacturing.
In governmental, we provide peak-performance diesel engines and
propulsion systems with outstanding power density and power-to-weight
ratios. We have a market share greater than 30% and our key markets
are land defence and naval.
In marine, we deliver integrated diesel, gas and hybrid propulsion
systems, including automation and control systems, which are renowned
for their reliability and performance. We have a market share of
15%-20% and our key markets are commercial marine and yacht.
In industrial, we offer a broad range of highly reliable industrial diesel
and hybrid solutions for a diverse range of requirements. We have a
market share of 10%-15% and our key markets are rail and mining.
Our fast growing battery energy storage systems business (BESS), which
we expect will become profitable in the near-term, provides grid
stability to harness renewable power.
In 2024, order intake in Power Systems was £5.1bn, up 19% versus the
prior year, with a book-to-bill ratio of 1.2x. OE order coverage for 2025
is 82%. Demand remains particularly strong in power generation, with
data centre orders up 42% year on year, and in governmental where
order intake increased by 33%.
Financial performance
Underlying revenue was £4.3bn, an increase of 11% versus the prior
year, with particularly strong growth in power generation, where
revenues grew by 25%, and by 46% for data centres. Revenue growth
was also strong in governmental at 17%, reflecting continued demand
for land defence and naval products. Industrial revenues were 20%
lower, largely as a result of the disposal of the lower power range of off
highway engines. Underlying OE revenues grew by 14% to £2.9bn.
Underlying services revenue grew by 5% to £1.3bn.
Underlying operating profit grew by 40% to £560m. Underlying
operating margin rose by 2.7pts to 13.1% (2023: 10.4%). Higher
operating profit reflected significant growth in power generation and
benefits from our young and growing BESS business. Power generation
growth was driven by data centres, where we have restructured our
business model to achieve a double-digit operating margin, with our
differentiated offering for back-up power generators, competing on
power density, speed of back-up and service. Higher operating profit
was also supported by cost efficiency benefits.
Trading cash flow was £452m with a conversion ratio of 81% versus
£461m and 112% last year. The decrease in trading cash flow reflected
strong growth in operating profit, offset by investment in working
capital to support business growth.
Operational and strategic progress
In power generation we have been capturing the growing demand for
data centres and global trends for cloud computing, data processing
and AI. Furthermore, we see data centre operators increasingly looking
for more sustainable solutions, and as such we are receiving increasing
orders for power generation solutions that operate on sustainable fuels.
BESS are a logical complement to our power generation business and
expand our markets towards new applications such as utility-scale
storage. Here we can leverage existing system capabilities and market
access to create a profitable BESS business. Recent contracts include
a contract with Latvia to install one of the largest BESS in the EU and
our BESS activities remain on track to break even in the near term.
Underlying revenue mix Underlying revenue mix by sector
OE – 69%
Services – 31%
Power generation – 49%
Governmental – 26%
Marine – 10%
Industrial – 14%
BESS – 1%
UNDERLYING REVENUE UNDERLYING OPERATING PROFIT UNDERLYING OPERATING MARGIN ORDER BACKLOG
£4,271m
2023: £3,968m
£560m
2023: £413m
13.1%
2023: 10.4%
£4.8bn
2023: £4.1bn
POWER SYSTEMS
29
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
OUR DIVISIONS
In governmental, we have a leading position today and are well
positioned to outgrow the market as our propulsion systems are well
placed for the current investment cycle into military vehicles and naval
vessels. Rolls-Royce is supplying mtu propulsion and on-board power
systems for three new Polish Navy frigates. Furthermore, we will drive
additional growth by expanding our offering towards more integrated
solutions such as ship automation products. Through disciplined
investments in technologies, we are also strengthening our longer-term
opportunities and underpinning our leading market position.
In marine, we have a market leading position in the highly profitable
yacht market and a strong position in commercial marine. Our target
is to strengthen our leading position in yachts and further improve our
position in commercial marine through various strategic measures. Part
of this is our bridge-to-propeller strategy which creates profitable
upsell potential and differentiation by providing our customers with
fully integrated solutions from bridge automation to the propulsion
system. Recent orders include a bridge to propeller contract with
Azimut Benetti Group.
We also continued to invest in renewing our next generation engine
product line, which will offer best-in class power density and fuel
efficiency. Regionally, we expanded our JV in China with Yuchai to
address the fast-growing market.
In August, we completed the sale of the lower power range engines
business of Rolls-Royce Power Systems AG to Deutz AG. This deal
followed the realignment of our strategy to focus on the supply and
maintenance of engines and systems primarily from our own production.
In all the above-mentioned markets, we have already made significant
progress towards offering lower carbon solutions. However, the speed
of transition and customer demand strongly varies between our sectors.
Combustion engines will remain highly relevant for many years,
increasingly powered by sustainable fuels. The use of the sustainable
diesel substitute, hydrotreated vegetable oil (HVO), can reduce full
lifecycle emissions by up to 90%. Nearly all of our major engine
platforms are already able to run on HVO and some of our customers
are using this fuel to cut their emissions. During the year, we helped
Swedish operator EcoDataCenter switch the fuel for their mtu emergency
power generators from fossil-derived diesel to sustainable HVO.
Rolls-Royce also reached the milestone of delivering over 500
HVO-powered mtu generators to the data centre sector, representing
nearly 1.3GW of standby power capacity, through its partner AVK.
In marine, we are developing methanol-based solutions and for power
generation we see hydrogen-based engines as a future solution. These
developments are based on existing engines and given the progress
already made we are well-positioned to deliver this transition.
In addition, we are investing in electrification by offering hybrid
solutions, for example, for the commercial marine market, and
transitioning our power generation business gradually to complement
battery-based solutions. By taking these steps we are participating in
the energy transition and supporting our customers in various industries
to achieve their growth and sustainability goals at the same time.
In 2024, we continued to progress towards our sustainability and
net zero targets with an agreement with Lürssen to collaborate on yacht
refits with the latest technologies and we commissioned the first Liberty
Lines high-speed ferry with hybrid systems.
Outlook
We target a 14%-16% margin in the mid-term (2024: 13.1%). Higher
operating profit will be driven principally by power generation, as we
continue to capture profitable growth in the data centre market,
alongside governmental, and BESS which we aim to be profitable in the
near-term. We also expect continued growth in our marine and
industrial businesses.
Beyond the mid-term, we have differentiated positions in power
generation, governmental, marine and industrial end markets. Growth
will be largely driven by power generation, notably data centres, where
our strong market position will be supported by the introduction of
our next generation engine that will offer higher power density, lower
emissions, and improved fuel consumption compared to its peers. We
also see opportunities for profitable growth in our lower carbon
products, notably BESS.
Financial overview
£ million 2024
Organic
change
1
FX 2023 Change
Organic
change
1
Underlying revenue 4,271 421 (118) 3,968 303 11%
Underlying OE revenue 2,942 362 (81) 2,661 281 14%
Underlying services revenue 1,329 59 (37) 1,307 22 5%
Underlying gross profit 1,199 182 (33) 1,050 149 17%
Gross margin % 28.1% 26.5% +1�6pt
Commercial and administrative costs (483) (39) 12 (456) (27) 9%
Research and development costs (165) 17 5 (187) 22 (9)%
Joint ventures and associates 9 4 (1) 6 3 67%
Underlying operating profit 560 164 (17) 413 147 40%
Underlying operating margin % 13.1% 10.4% +2.7pt
2024 2023 Change
Trading cash flow 452 461 (9)
1 Organic change is the measure of change at constant translational currency applying full year 2023 average rates to 2024. All underlying income statement commentary is provided on
an organic basis unless otherwise stated
30
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OUR DIVISIONS
Market overview
Momentum for small modular reactors (SMRs) is building as countries
explore the use of nuclear as a route to achieving secure sources of
low-carbon electricity and powering the needs of AI infrastructure. We
continue to see opportunities in the export market as well as in the UK.
In addition to being selected as the preferred provider of SMRs in the
Czech Republic, Rolls-Royce SMR has been shortlisted in both Sweden
and the UK. In the UK we also remain significantly ahead of the
competition in the regulatory process.
We made the decision to exit our electrical business in 2023 and in
September 2024 we announced the closure of our advanced air
mobility activities.
Financial performance
Planned increases in expenditure to meet development milestones in
SMR resulted in an increased operating loss for New Markets of £(177)m
versus £(160)m in the prior year.
Trading cash flow was an outflow of £(181)m compared to £(63)m in the
prior year.
Operational and strategic progress
Our SMRs are designed to produce stable, affordable and emission-free
electricity. Each one will power a million homes for at least 60 years.
The modular build approach is the fastest and cheapest way to get
nuclear on-grid solutions to help meet global net zero ambitions.
Rolls-Royce SMR is controlling the integrated design of the powerplant
and enabling a very high level of modularisation. This moves work from
on site construction into a standardised, controlled, factory build with
modules then assembled on site. It also reduces cost, risk and time to
construct and results in a highly competitive cost of electricity.
In 2024, Rolls-Royce SMR was named as the preferred supplier for the
construction of SMRs by the Government of the Czech Republic and
the Czech State utility, ČEZ Group. This represents an exclusive
commitment to deploy up to 3GW of electricity in the Czech Republic.
Furthermore, this position is strengthened by a strategic investment
by ČEZ Group into Rolls-Royce SMR, which we announced in the last
quarter of the year. This partnership also enhances Rolls-Royce SMR’s
position as Europe’s most advanced SMR technology, and puts ČEZ
Group, Rolls-Royce SMR, and its existing shareholders, BNF Resources,
Constellation, QIA and Rolls-Royce at the forefront of SMR deployment.
In the UK Government’s competition to select and contract providers
of SMR technology, Rolls-Royce SMR was shortlisted as one of four
potential providers, alongside three international vendors. A final
selection is expected in 2025. Rolls-Royce SMR remains the only
company in the final step of the UK regulatory licensing process.
Rolls-Royce SMR was also selected as one of two potential providers
by the Swedish company Vattenfall to deploy a fleet of SMRs in Sweden.
We continue to press for contractual certainty in the UK market and
seek to build on the export success that has been achieved in the Czech
Republic, with additional export commitments. We remain deeply
engaged with governments, regulators, developers and potential
industrial customers.
To deliver our SMR solution we are supported by the breadth of
expertise brought by our fellow shareholders and a broad set of
industrial partners. Collaboration with European regulators will de-risk
our deployments outside the UK and support deployment at
pace. Furthermore, we are mitigating risk through our commercial
arrangements.
We expect our first contracts for units to be finalised in 2025, which
we anticipate to be the catalyst for a pipeline of further commitments.
Outlook
Our unique nuclear capabilities and differentiated offering means that
we are well-placed to become a market leader in SMRs, where we see
a significant value creation opportunity. We also see opportunity in
the micro-reactor market.
Financial overview
£ million 2024
Organic
change
1
FX 2023 Change
Organic
change
1
Underlying revenue 3 (1) – 4 (1) (25)%
Underlying OE revenue 3 1 – 2 1 50%
Underlying services revenue – (2) – 2 (2) (100)%
Underlying gross (loss)/profit (4) (5) – 1 (5) nm
Gross margin % (133.3)% 25.0% (158.3)pt
Commercial and administrative costs (40) (17) 1 (24) (16) 71%
Research and development costs (133) 3 1 (137) 4 (2)%
Joint ventures and associates – – – – – –
Underlying operating loss (177) (19) 2 (160) (17) 12%
2024 2023 Change
Trading cash flow (181) (63) (118)
1 Organic change is the measure of change at constant translational currency applying full year 2023 average rates to 2024. All underlying income statement commentary is provided on
an organic basis unless otherwise stated
NEW MARKETS
New Markets are early-stage businesses. They leverage our existing, in-depth engineering expertise
and capabilities to develop sustainable products for new markets, focused on the transition to net zero.
31
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Rolls-Royce is a force for progress, committed to playing our part in the energy
transition for a more sustainable world.
The following table summarises where you can find further information on each of the key areas of disclosure required by sections 414CA and
414CB of the Companies Act. The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 amend these sections
of the Companies Act 2006, placing requirements on the Group to incorporate climate disclosures in the Annual Report. We believe these have
been addressed within the climate-related disclosures on pages 34 to 45 and as such we have referenced the location of these within our
statement on TCFD on page 36�
AREA OVERVIEW
RELATED GROUP
POLICIES&GUIDANCE
RELEVANT
PRINCIPAL RISKS PAGE
Environmental
matters and
climate-related
disclosures
We have an important role to play in the global energy transition and
it continues to be a strategic priority. During 2024, we completed the
initial phase of a sustainability strategic review, during which, the Board
and Executive Team reconfirmed their commitment to becoming a net
zero company by 2050. We will also continue to focus on helping our
customers to deliver their own sustainability agendas.
—
Health, safety &
environment
—
Safety
—
Energy
transition
34 to 45
Employees
One of our new behaviours ‘Put safety first’ (see page 46) reinforces
that safety, health and wellbeing are central to everything we do, and
encourages a speak up culture. We recognise the impact that employee
health and wellbeing – both physical and mental – has on the safety of
our people, products and processes. As well as adhering and complying
with Our Code and Group policy framework, employees also undertake
our annual mandatory learning programme which centres around our
values and behaviours and our safety, security and legal obligations.
—
Our Code
—
Security
—
People
—
Speak up
— Our life-saving rules
—
Safety
—
Talent &
capability
46 to 51
Social matters
We are passionate about supporting young people – particularly those
who are underrepresented in our industry and underserved in the
community – to engage and participate in science, technology,
engineering and maths (STEM) learning opportunities. Our target is to
inspire 25 million of ‘tomorrow’s pioneers’ by 2030. We do this by
partnering with organisations that deliver high quality STEM learning
experiences which are presented to and reviewed by our global network
of charitable contributions and social sponsorships committees.
—
Charitable
contributions and
social sponsorships
—
Political
49
Human rights
We are committed to protecting and preserving all internationally
recognised human rights of everyone who may be impacted by our
business activities along our value chain. This includes upholding the
principles set out in our global policies and processes to fulfil our legal
obligations and avoid any potential complicity in human rights violations.
In 2024, we have enhanced our human rights risk management framework
to ensure that we take appropriate action to prevent, minimise, mitigate
and, where necessary, remedy human rights related risks.
—
People
—
Diversity, inclusion
and belonging
—
Human rights
—
Data privacy
—
Modern slavery
statement
—
Compliance
51
Anti-bribery and
corruption
We do not tolerate bribery and corruption in any form, as set out in
Our Code and associated anti-bribery and corruption policy. We
routinely check and test the effectiveness of our anti-bribery and
corruption programme to manage proactively the associated risks (see
page 51). We conducted a deep dive review of anti-bribery and
corruption risks which was presented to the Board in July. Follow up
actions include monthly sessions with the Chief Financial Officer and
General Counsel to ensure actions to mitigate risks are progressing in
a cohesive manner.
—
Anti-bribery and
corruption
—
Compliance
51
NON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
Relevant information
For a description of our business
model, see pages 14 and 15
For a description of our non-financial
KPIs, see page 18
For details of the Group’s principal
risks, seepages 52 to 60
Further information on Group policies
can be found on www.rolls-royce.com
32
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Sustainability
2024 HIGHLIGHTS
Launched our new purpose and behaviours
Completed the first phase of the sustainability strategic review
Announcement of Rolls-Royce as part of a landmark UK-Qatar climate
technology partnership
Employee health and wellbeing, both physical and mental, directly
impact the safety of our people, products and processes. We support
colleagues in leading healthy lifestyles and maintaining overall
wellbeing. We believe all incidents are preventable, focusing on
proactive risk management as the foundation of our safety culture and
a driver of our zero-harm strategy.
In 2025, we will continue embedding our new purpose and behaviours,
reinforcing new ways of working, to drive efficiency, operational
excellence and strategic execution. Our focus remains on building a
sustainably distinctive business that benefits all our stakeholders.
Rolls-Royce is a force for progress, committed to making a difference
by reaching net zero by the end of 2050. In 2024, we completed the
first phase of a sustainability strategy review focusing on the energy
transition. As part of this review, the Board and Executive Team
reconfirmed their commitment to interim targets for Scope 1 + 2
emissions in line with our longer-term net zero goals.
We continue our focus on delivering new products and solutions that
can accelerate the global energy transition with a number of
achievements including the Rolls-Royce SMR design completing stage
two of the UK Generic Design Assessment (GDA) process; our microgrid
in Pusane, India, which won the German Sustainability Award; and the
UltraFan team who was awarded a Royal Aeronautical Society team
gold medal for their major contribution to the advancement of aerospace
engineering.
We are committed to increasing access to quality education and
supporting underrepresented young people in STEM, helping them
achieve their aspirations and overcome barriers to success. We reached
over one million people through STEM in 2024, progressing 45% towards
our goal of inspiring 25 million young innovators by 2030 (see
page 49).
We continue to drive an organisation that is unwavering in its support
for a true meritocracy. In 2024, our efforts have been focused on
tackling systemic barriers to the identification, progression, and
retention of the best people throughout the Group to ensure that
talent has equitable access to opportunities and can truly thrive.
We maintain the highest standards of ethics and compliance and as
such engage with our employees on the important role they play in
maintaining our high standards and living up to our company behaviour
to do the right thing. Our annual mandatory learning programme,
included core compliance learnings relating to gifts and hospitality
policies, data privacy and export control. We ask all our employees to
annually certify their understanding of Our Code.
In April 2024, we received official confirmation that we had been released
from monitorship and the completion of leniency agreement with a
CGU in Brazil.
We continued to focus on our human rights risk management framework
to ensure that we take appropriate action to prevent, minimise, mitigate
and, where necessary, remedy human rights related risks. Our framework
includes processes, methods and tools to regularly assess our own
operations and those of our suppliers.
We strive to operate responsibly and use the UN Sustainable
Development Goals (SDGs) to guide areas of focus. As we complete
further phases of our sustainability strategic review, we will continue
to refine our alignment to the wider UN SDGs with a 2025 focus on
responsible consumption and the social impacts on our people and
communities. We also routinely benchmark performance in
environmental, social and governance (ESG) assessments such as the
Dow Jones Sustainability Index and the CDP.
ROLLS-ROYCE IS A FORCE FOR PROGRESS
WE ARE COMMITTED TO FIND OUT MORE UN SDG ALIGNMENT
Energy transition
and climate
Helping the world do things tomorrow that
cannot be done today and play our part in the
energy transition for a more sustainable world
Pages 34 to 35
People and culture
Being socially responsible: creating a positive
impact for our people and our stakeholders
Pages 46 to 50
Ethics and
compliance
Operating ethically: living our behaviours in
accordance with our Group policies
Page 51
33
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
OUR PROGRESS IN 2024
UltraFan team awarded the Royal Aeronautical Society gold medal for
their major contribution to the advancement of aerospace engineering
Power System’s microgrid in India received the German Award for
Sustainability Projects in the technology-energy category
Rolls-Royce SMR design completed step two of the UK Generic Design
Assessment for nuclear power plants
These emissions included 143 ktCO
2
e from facilities and operations and
158 ktCO
2
e from testing activity. We continued to reduce our
operational emissions by a further 5 ktCO
2
e, a 3% improvement
compared with 2023. The overall increase in total Scope 1 + 2 emissions
was driven by an increase in product development testing, 55 ktCO
2
e�
The additional testing was in support of Trent XWB-84 EP certification.
The main tests completed were a cyclic development test and a 150
hours certification test. The Trent XWB-84 EP achieved certification
in December 2024 and builds on the proven track record of the Trent
XWB-84, already celebrated as the world’s most efficient large aero
engine in service. Cutting-edge advances in aerodynamics and engine
design allow us to further optimise performance, unleashing a 1%
improvement in fuel efficiency and CO
2
emissions, whilst further
advancing our industry-leading reliability and durability.
Safety is our number one priority. Product testing is a critical part of
our product safety assurance approach as well as a core part of the
engine certification programmes that help us to deliver more efficient
and lower emissions products. We recognise the potential for these
activities to increase our emissions in the short term but they do not
affect our commitment to an emissions reduction plan.
Operations, facility, and product test emissions (ktCO
2
e)
1, 2
174
130
175
130
148
103
143
158
206
2219
3
20 21
24 30
23
183
125
236
146
TARGET
Operations and facility
Product test
1 External assurance over Scope 1 + 2 data is provided by Bureau Veritas. See page 211 for
their sustainability assurance statement
2 Data has been reported in accordance with our basis of reporting, available at
www.rolls-royce.com/sustainability
3 2019 baseline
We continue to use sustainable aviation fuel (SAF) blends across our
Civil Aerospace and Defence UK testing activities to help mitigate some
of these emissions. Since October genset testing in Friedrichshafen,
Germany has been using 3.4% hydrotreated vegetable oil (HVO) fuel.
Following completion of the first phase of our sustainability strategic
review, we are announcing a new interim target to reduce our total
Scope 1 + 2 emissions by 46% by 2030, from a 2019 baseline. This target
brings product test into the scope of our emissions reduction targets
for the first time and is aligned with a 1.5°C emissions reduction
trajectory.
This target will be achieved through a combination of procuring clean
energy, reducing overall energy demand and clean power generation.
This latter element will utilise our own technology portfolio, including
the commissioning of a battery installation for the logistics centre in
Friedrichshafen, Germany.
Part of the next phase of our sustainability strategic review will include
emissions sources beyond those within our immediate control (Scope
3). The emissions in our supply chain (Scope 3, category 1, purchased
goods and services) account for approximately 2.5% of our total
emissions and, as such, are our second largest emission category after
the emissions from our products in operation (Scope 3, category 11,
use of sold products emissions). Our Scope 3, category 1 emissions were
estimated as 2.18 MtCO
2
e in 2024�
We recognise the important role we play in the global energy transition
and it continues to be a strategic priority. In 2024, we completed the
first phase of a sustainability strategic review with a focus on energy
transition. The review focused on key areas that are within our control
as well as those that we need to support, influence and partner within
our sectors. The review reconfirmed our commitment to reaching net
zero by the end of 2050 by delivering the interim and long-term targets
which now include product testing. These targets are:
— reduce Scope 1 + 2 emissions by 46% by the end of 2030 against a
2019 baseline;
—
reduce Scope 1 + 2 emissions to a net zero position by the end of
2050;
—
demonstrate that all our products are compatible with net zero
operations by the end of 2050;
— support the achievement of the industry net zero Scope 3, category
11 (use of sold products) greenhouse gas emissions by the end of
2050 in line with a science based trajectory.
Recognising the importance of decarbonising our own operations, 10%
of our 2025 long-term incentive plan (LTIP) will be linked to delivering
progress to the 2030 reduction target for Scope 1 + 2 emissions (see
page 18 for further details).
Our strategy focuses on four pillars:
1�
decarbonising our operations, facilities, product testing and
business activities;
2� enabling our customers to operate their products in a way that is
compatible with low or net zero carbon emissions;
3�
delivering new products and solutions that can accelerate the global
energy transition; and
4�
supporting the necessary enabling environment, with public and
policy support, to achieve our collective climate goals.
The following pages outline the progress we have made in advancing
our strategy as well as the progress against our targets in 2024. We
also outline our approach to assessing strategic resilience in the face
of climate change through alignment with our Task Force on
Climate-related Financial Disclosures (TCFD) reporting (see page 36).
Decarbonising our operations, facilities, product testing and
business activities
Playing our part in the energy transition means reducing energy
consumption and decarbonising operations and product testing. This
will help ensure our facilities and internal supply chains remain resilient
in a changing external environment. We continue to make progress in
decarbonising our global operations. Our total annual Scope 1 + 2
emissions, those associated with our operations, facilities, testing and
business activities, comprised 301 ktCO
2
e in 2024, a 50 ktCO
2
e increase
compared to 2023.
Energy transition and climate
We are committed to reaching net zero by the end of 2050.
34
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
Total emissions footprint percentage split
1
(%)
Use of sold products on a
fossil fuel based pathway
(with weight based
adjustment) – 97.0%
Purchased goods and
services – 2.5%
Other
2
– <0.5%
1 Data has been reported in accordance with our basis of reporting, available at
www.rolls-royce.com/sustainability
2 Other emissions calculated based on Scope 1 + 2 actuals for 2024 and Scope 3 estimations
from 2019
Enabling our customers to operate their products in a way
that is compatible with low or net zero carbon emissions
The biggest contribution that Rolls-Royce can make to the global energy
transition is to ensure the sectors we operate in (transport, energy and
power generation) are compatible with net zero carbon emissions.
Scope 3, category 11 emissions, those associated with the use of our
sold products by our customers, are approximately 97% of our
emissions and therefore dominate our emissions footprint. We are
committed to working with our customers to enable them to operate
these products in a way that is compatible with net zero emissions. We
continue to see a reduction in Scope 3, category 11 emissions intensity
driven through the sale of more efficient products and a shift in Power
Systems’ portfolio to lower emission applications.
Use of sold products emissions intensity withweight based
adjustment (ktCO
2
e/£m OE revenue)
3, 4
12.1
13.6
10.5
10.5
7.6
19 23 2422
14.8
15.7
18.2
Scope 3, category 11
100% fossil fuel
pathway
Scope 3, category 11
100% sustainable
fuels pathway
3 Absolute Scope 3, category 11 emissions are available on page 42
4 Data has been reported in accordance with our basis of reporting, available at
www.rolls-royce.com/sustainability
To help our customers operate to the latest emissions standards,
Rolls-Royce now offers the mtu Series 1163 and 8000 large engines in
all cylinder variants in the power range between 4,800 and 10,000 KW
with Selective Catalytic Reduction system for compliance with emission
stage International Maritime Organisation Tier III.
Civil Aerospace made progress towards net zero operations using
hydrogen as a fuel through the development and patenting of a series
of components that make up a hydrogen injector for the Pearl GH2
demonstrator engine. The injector will be used in a Pearl 15 GH2
demonstrator engine to help us form the first commercial hydrogen
powered solution in the industry.
The UltraFan team were awarded a Royal Aeronautical Society team gold
medal for their major contribution to the advancement of aerospace
engineering. UltraFan is the world’s largest demonstrator aero engine
containing a suite of scalable new technologies that deliver greater fuel
efficiency. By enabling lower emissions and advancing sustainable
practices, UltraFan contributes significantly to the aerospace industry’s
goal of achieving net zero carbon emissions by 2050. The demonstrator
was successfully tested using 100% sustainable aviation fuel.
Delivering new products and solutions that can accelerate
the global energy transition
Beyond mitigating emissions associated with existing products and
markets, we continue to develop technologies that can support the
acceleration of the energy transition. Through the provision of low
carbon and net zero technologies, we can help to abate emissions
outside of our own emissions footprint in support of national and
international climate policy goals.
Our strategy includes the development and deployment of small
modular reactors (SMRs). This technology can play a vital role in
decarbonising the global energy mix and in meeting increasing demand
for clean electricity.
During 2024, the Rolls-Royce SMR design completed stage two of the
UK GDA process. In addition, Rolls-Royce SMR was named as preferred
supplier to the Czech Republic utility company, ČEZ Group. This
decision strengthens our position in Europe as a leading SMR
technology and will create jobs, enable decarbonisation, reduce the
reliance on imported energy and support the global effort to reach
net zero. Rolls-Royce SMR is also one of the final two SMR technologies
in Sweden’s SMR selection process.
In Power Systems, we see battery energy storage solutions as a growth
area which complements our existing expertise in stationary power
generation. Energy storage will play a critical role in stabilising
intermittent renewables as part of the global energy transition.
In 2024, Power Systems was selected to supply an mtu battery energy
storage system (BESS) with an output of 12 MW and a storage capacity
of 24 MWh to Encavis AG. We will supply and install the energy storage
system on a turnkey basis. It is expected to go into operation in the first
quarter of 2025. In addition to this, Latvian transmission system
operator Augstsprieguma tikls has ordered an mtu large-scale battery
storage system to secure the Latvian power grid. Power Systems will
supply an mtu EnergyPack QG large-scale battery storage system with
an output of 80 MW and a storage capacity of 160 MWh. This makes
the system one of the largest battery storage systems in the EU,
supporting Latvia and other Baltic states to synchronise their energy
supply with the continental European power grid in 2025.
Our microgrid in Pusane, India, won the German Sustainability Award.
The microgrid consists of solar modules with 88.11 KWp as the main
power source and a battery storage system with a capacity of 117.18kWh
for storing electrical energy. It will serve as the sole power source for
Pusane village.
Support the necessary enabling environment, with public
and policy support, to achieve our collective climate goals
Our ability to deliver our strategy and to support our customers and
government partners to meet their own climate goals is highly
dependent upon a supportive external environment. We continue to
actively engage policy makers, regulators and others to advocate for
the necessary policy and economic support we have identified. During
2024, this included:
—
Rolls-Royce being part of the landmark UK-Qatar climate technology
partnership announced by the UK Prime Minister in December 2024;
—
joining the Americans For Clean Aviation Fuels (ACAF) coalition,
bolstering policy advocacy in the United States alongside aerospace
and energy industry partners;
—
presenting an International Civil Aviation Organization (ICAO)
ACT-SAF webinar ‘Update on 100% SAF testing and recent
achievements’;
—
continued membership of the Alliance for Zero Emission Aviation
(AZEA); and
—
continued membership of the Renewable and Low-Carbon Fuels
Value Chain Industrial Alliance (RLCF).
35
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
TCFD recommendations
RECOMMENDATION CONSISTENCY PAGE CA 414CB
1
Governance
A
Board oversight of climate-related risks and opportunities
37 CA s414CB(a)
B
Management’s role in assessing and managing climate-related risks
and opportunities
37 CA s414CB(a)
Strategy
A
The organisation’s identification of climate risks and opportunities
it faces over the short, medium and long term
38 CA s414CB(d)
B
Consideration of the impact of climate risks and opportunities
on the organisation’s business, strategy and financial planning
38 CA s414CB(e)
C
Resilience of the organisation’s strategy, taking into consideration
different climate-related scenarios
40 CA s414CB(f)
Risk
management
A
Presence of the organisation’s processes for identifying
and assessing climate-related risks
38 CA s414CB(b)
B
Processes for managing climate-related risks including
prioritisation methods
38 CA s414CB(b)
C
Processes for identifying, assessing and managing climate-related
risks are integrated into overall risk management
38 CA s414CB(c)
Metrics and
targets
A
Disclosure of metrics used to assess climate risks and opportunities
in line with strategy and risk management processes
42 CA s414CB(h)
B
Disclosure of material greenhouse gas emissions and the
associated risks
42 –
C
Presence of targets used to manage climate-related risks
and opportunities and performance against such targets
42 CA s414CB(g)
1 Companies Act 2006, s414CB(2a)-(2h)
Task Force on Climate-related Financial Disclosures statement
We continue to build our understanding of climate-related risks and
opportunities to ensure we are strategically prepared for a
climate-impacted future and able to seize commercial opportunities
that arise from the energy transition. These activities in turn help to
support our Task Force on Climate-related Financial Disclosures (TCFD)
reporting.
In our 2023 Annual Report, we confirmed a position of consistency
with nine of the 11 recommendations under the TCFD framework. We
reported partial consistency against Strategy C and Metrics and targets
C recommendations. In 2024, we improved in all areas of the TCFD
recommendations. With the improvements made against Strategy C
and Metrics and target C, we are now consistent with all 11
recommendations.
Through the first phase of our sustainability strategic review we have
made considerable progress across the spectrum of TCFD pillars. This
includes:
—
strengthening Executive Team and operation management
governance (see page 37);
— defining interim targets (see page 34);
—
reviewing and refining our climate scenarios (see pages 38 to 41);
and
—
completing a long range qualitative assessment of the organisation’s
strategy and the resilience with respect to climate scenarios (see
page 41).
Strategy C – resilience of the organisation’s strategy
In 2023, the quantitative assessment of resilience of the organisation’s
strategy was only completed to a ten-year (medium-term) time horizon.
This meant that we could show only partial consistency with the
Strategy C recommendation as most of the risks are expected to
materialise after this period. In 2024, Rolls-Royce re-ran the
quantitative assessment for ten years and, in addition, completed a
qualitative assessment to 2050 (long term). This long-term assessment
covered the expected period of risk and opportunities to materialise.
The assessment identified no new risks or opportunities to be
considered and that at this time we believe we would be able to detect
and respond to any impact on demand, cost or competitive position.
This assessment confirmed the resilience of our strategy in the
long-term and as such means we now believe we show consistency with
the Strategy C recommendation.
Metrics and targets C – presence of targets
Our sustainability strategic review defined an interim target for 2030
to support the mitigation of risk, realise opportunities and
manage performance. The defined target is:
— reduce Scope 1 + 2 emissions by 46% by the end of 2030 against a
2019 baseline�
This target was used as part of the sustainability strategic review to
develop a granular delivery plan for Scope 1 + 2 reduction and the
required investments to be included in the five-year plan. We believe
this target, and the work it has informed, now brings Rolls-Royce back
into consistency with Metrics and targets C to reach net zero by the
end of 2050.
36
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
Sustainability governance structure
Sustainability steering committee
Remuneration
Committee
Safety, Energy Transition
& Tech Committee
Energy transition & technology
committee
People committee Executive audit committee
Sustainability strategy and
implementation review
Sustainability data governance and
reporting review
Sustainability risk review
Board
oversight
Executive Team
governance
Operational and
programme
governance
Audit Committee
Nominations, Culture &
Governance Committee
Governance
Sustainability and climate are embedded within our Group governance
framework, risk management system and operating model. The Board
has oversight of climate-related risks and opportunities impacting the
Group. All Board Committees include an aspect of sustainability within
their remit. The Executive Team is responsible for the delivery of our
climate strategy, including associated targets and transition plans, and
for ensuring the assessment of and appropriate response to
climate-related risks and opportunities throughout our business model
and activities.
In 2024, we reviewed our governance structure at both an Executive
Team and operational management level to reflect the changes in our
business model and wider strategy. These changes have strengthened
the focus on:
— integration across all ESG topics;
— strategy prioritisation;
— robust operational planning and delivery; and
— disclosure and data control.
Board
The Board has oversight of sustainability, including climate-related risks
and opportunities impacting the Group. Some specific elements of
those oversight responsibilities are delegated to committees of
the Board.
After each Committee meeting, the Committee chair reports back to
the Board on topics discussed. During 2024, the Board reviewed and
approved the first phase of our sustainability strategic review, company
targets, and the impact upon our climate-related disclosures.
The Safety, Energy Transition & Tech Committee oversees the Group’s
sustainability strategy, priorities and progress and has delegated
responsibility to review the principal risk relating to climate change.
It receives reports from the sustainability team and is updated on the
discussions held at the executive-level energy transition & technology
committee. In 2024, the Safety, Energy Transition & Tech Committee
oversaw the first phase of the sustainability strategy review and agreed
the delivery plans and targets that were developed.
The Audit Committee is responsible for reviewing and approving the
content of our TCFD recommendations and noted progress as
preparations were being made for the disclosures in this report.
The Committee also ensures that, where material, the impact of climate
change is reflected in the financial statements and disclosed
appropriately. In 2024, the Audit Committee reviewed and agreed the
approach to be ready for incoming sustainability legislation, including
the EU Corporate Sustainability Directive (CSRD) and the expected
inclusion of the International Sustainability Standards Board (ISSB)
general and climate requirements into UK Corporate Governance.
The Remuneration Committee determines our remuneration policy,
and in 2024 approved that 10% of our 2025 LTIP be linked to delivering
progress to the 2030 reduction target for Scope 1 + 2 emissions.
The Nominations, Culture & Governance Committee reviews the Board’s
skills and oversees membership of each of the Board Committees and
terms of reference, ensuring that the Board’s governance and oversight
of ESG matters, including climate, is appropriate.
Management
The Executive Team is responsible for managing sustainability,
including climate-related risks and opportunities on a day-to-day basis
and for delivering the programmes and plans to achieve our
sustainability goals, including decarbonisation.
The energy transition & technology committee, which meets four times
a year, is a sub-committee of the Executive Team and is responsible for
formulating and overseeing the Group’s response to climate change
and the energy transition and its technology portfolio. The committee
also reviews investment decisions and projects where they relate to
the energy transition or have an impact on mitigating Scope 1 + 2 or
Scope 3 emissions. The committee is chaired by the Chief Executive
and all members of the Executive Team are invited to participate. The
committee regularly reports to the Safety, Energy Transition & Tech
Committee. The energy transition & technology committee receives
regular updates from our sustainability steering committee, which
specifically oversees progress against our sustainability programme,
including climate. In 2024, the energy transition & technology
committee provided guidance and oversight of the sustainability
strategic review and provided updates to the Safety, Energy Transition
& Tech Committee on progress. The committee also reviewed and
agreed the five-year plan inputs required to deliver against the 2030
Scope 1 + 2 target. The outputs from the energy transition risk deep
dive were also reviewed by the committee.
The sustainability steering committee comprises core functional and
capability representatives from the Executive Team, including the Chief
Transformation Officer, General Counsel, Chief Financial Officer, Chief
People Officer and Group Director of Engineering, Technology and
Safety. The committee meets quarterly as a minimum, or more regularly
to meet business needs. It provides regular steering and oversight of
the sustainability strategy and progress made against our
sustainability strategy implementation and goals.
37
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
Assessing strategic resilience
We assess our resilience over three time horizons: short term (less than
five years), medium term (five to ten years) and longer term (ten years
plus). This year we have focused on a qualitative assessment in the
long term and re-ran a quantitative assessment in the short and
medium term.
We use climate scenarios to test our strategic planning. We test against
our business planning baseline to assess potential risks to our financial
performance and to identify ways to mitigate our exposure to these
risks. The output of these assessments helps inform our wider business
planning and decision making, including our technology portfolio and
investment decisions, as well as our related engagement activities.
Three potential futures have been considered, (see page 39), based on
independent external climate scenarios that present plausible levels
of global temperature rise and associated policy responses. These
scenarios are not predictions or forecasts but future possibilities which
enable us to explore the physical and transition risks and opportunities
associated with climate change that may manifest over short-, medium-
and longer-term horizons.
The primary question our assessment considers is to what extent do
the climate scenarios manifest as risks and opportunities to the
business? This includes assessment of potential impacts on market
dynamics and demand; cost exposure, for instance carbon pricing; and
physical impact of climate change on operations, including
site-based impacts.
From this primary question, the questions assessed under each
scenario include:
— how does the scenario impact the life or risk exposure of assets?
— how does the scenario impact future revenue projections?
— how does the scenario impact future profitability projections?
— what additional costs or revenues may occur under each scenario?
The outputs of this exercise inform our climate-related risk management
process�
In 2024, we have followed a three-step process:
1. identify, review and confirm key and emerging risks and
opportunities;
2. confirm key scenarios and assumptions; and
3. model the potential impact of each risk.
Climate-related risks and opportunities
The identification, assessment and management of climate-related risks
and opportunities is undertaken as part of our enterprise risk
management framework in line with the TCFD Technical Supplement
(see page 52). One of the ways climate-related risks and opportunities
are identified is through the emerging risk process (see page 54). The
Group regulatory horizon scanning process also helps us prepare to
comply with incoming changes in environmental, social and corporate
governance practices and disclosure requirements.
Once a risk is identified, the framework includes a requirement for risk
owners to decide on and document their response to an identified risk.
Although there are some examples where the risk can be transferred,
in most cases risks are accepted and require mitigation, such as
effective controls and/or a plan of action. These are monitored through
our risk management effectiveness reviews (see page 52) with a focus
on control effectiveness. The determination of risk materiality is based
on gross and current (i.e. net) risk assessments, using Group-wide
scoring criteria for impact and likelihood. These criteria are used for
divisional and functional key risks as well as principal risks with the
expectation that the basis of the estimate is clear, consistent and with
key assumptions documented.
Aligning with our overarching enterprise risk framework and using
common assessment criteria for all risk categories ensures that risks
can be compared across the Group, supporting prioritisation and
providing a mechanism for monitoring how effectively we are
managing these risks.
We have identified seven key climate-related risks and opportunities
that are relevant to our business. Of these, four are transition risks and
opportunities resulting from the shift towards a low carbon future and
three are physical risks relating to the physical impact of climatic events.
Energy transition is our principal risk driver that specifically refers to
the potential impacts on future revenues as a result of a potential
failure to transition to an inherently lower carbon product portfolio.
This risk was previously described as climate change and renamed in
2024 to give transparency and clarity on the specific nature of the risk
(see page 58). Recognising climate change includes both transition
and physical risks, the physical aspect of the risk is considered as part
of the business interruption principal risk. This split reduces duplication
and places risk management in the appropriate responsible
business areas�
We have explored a number of climate-related opportunities. These
include the demand for high baseload low-carbon energy sources
provided through products like SMR; high demand for SAF compatible
products across our sectors; and low carbon energy systems for local
and back-up applications.
Climate scenarios assessment
1
In 2024, we used the same base case and three climate scenarios as in
2023. To bookend the base case we assess a high and low temperature
scenario and we use an additional scenario to explore a delayed and
disruptive transition (which may present additional challenges for
aspects of our business model, particularly in relation to the long-term
nature of our business).
The scenarios we use are based on independent external climate
scenarios
2
and are consistent with representative concentration
pathways (RCPs). We use additional supplementary data from
third-party sources, such as carbon pricing and GDP, to support our
modelling and financial impact assessments.
Modelling the potential impact
Cross-functional teams within each business, including representatives
from strategy, finance and risk, collectively assess the potential impact
of each key risk on the business under each of these three scenarios.
This includes calculating a revenue, cost or profit impact for each
scenario across the timescales defined. As part of our 2024 activity, we
have quantified short- (five years to 2029) and medium-term (ten years
to 2034) risks, consistent with our wider financial and strategic planning.
In addition, each business has considered, but not quantified, the
potential implications of each scenario on a longer-term outlook to
2050. At this time we have not identified any impact on demand,
cost or competitive position that we would not be able to detect and
respond to.
1 Under each scenario our modelling considers both physical and transition-related
elements
2 Key data points are taken from external sources, including Oxford Economics, Global
Climate Ser vice and Databank (data extract September 2024) and the International Energy
Agency, Net Zero by 2050 – A Road map for the Global Energy Sector, May 2021 and World
Energy Outlook 2024, October 2024. These data points are then used to model Group
specific assumptions such as demand for aviation and maritime transport
38
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
Key climate-related risks and opportunities
Transition
risks and
opportunities
Changing customer demand
Financial impact from changes to revenue and/or cost due to
customers responding to changing market conditions, for example,
customer sentiment or cost increases affecting passenger demand in
Civil Aerospace, opportunity for zero emissions solutions in our Power
Systems markets, customer priorities in Defence
Changes in costs due to carbon pricing
Changes to our costs due to the assumed application of carbon pricing
measures on our Scope 1 + 2 activities and the application ofcarbon
pricing to the activities of our suppliers that are passed through to us
in the form of higher part costs
Changes in costs due to commodity
price changes
Changes to our costs due to variation in market supply and demand
and/or cost passed through from suppliers
Change in investment requirement Changes to investment required (R&D, capital expenditure etc.) due to
a need to respond to changing customer demand
Physical
risks
Facility disruption
(acute risk)
Financial exposure resulting from a temporary (up to 12 months)
disruption to a Rolls-Royce facility due to a climate-related event, (for
example, flood or fire)
Supply chain disruption
(acute risk)
Financial exposure resulting from a temporary (up to 12 months)
disruption to supply chain due to climate-related event, (for example,
flood or fire)
Impact on product performance
(chronic risk)
Financial exposure resulting in a deviation in expected product
performance, (for example, power, efficiency and/or life etc.) due to
changes in environmental conditions
Climate scenarios: summary and key assumptions
1
DESCRIPTION
Baseline
The world follows a path in which social, economic and technological trends do not shift markedly from historical
patterns. Global and national institutions work toward achieving sustainability goals but make slow progress.
Environmental systems experience further degradation, despite gradual improvement in energy and resource intensity.
Global population growth is moderate and levels off in the second half of this century. Economic development proceeds
unevenly. Income inequality persists or improves only slowly and challenges to reducing vulnerability to societal and
environmental changes remain.
Net zero scenario
(Accelerated
transition)
(< 1.5°C by 2100)
The world shifts gradually, but pervasively, toward a more sustainable path, emphasising more inclusive development
that respects perceived environmental boundaries. Resulting global temperature rise plateaus at 1.5°C. Educational
and health investments accelerate the demographic transition and the emphasis on economic growth shifts toward a
broader emphasis on human wellbeing. Driven by an increasing commitment to achieving development goals,
inequality is reduced both across and within countries. Consumption is oriented towards low material growth and lower
resource and energy intensity.
High temperature
scenario
(Accelerated
physical)
(3.5°C by 2100)
Expanding fossil fuel demand and government failure to meet stated commitments leads to higher emissions. The
expected expansion towards renewables is cut short causing global emissions to rise significantly. Global warming rises
to 2.1°C by 2050, on track to hit 3.5°C of global temperature rise by 2100. This causes significant physical disruption
and damage that accelerates as the scenario progresses. Fossil fuel supply is slower to adjust than demand as existing
resources are strained and further exploration is needed. This causes spot prices to rise contributing to inflationary
pressure in both energy and consumer sectors.
Disruptive
scenario
(Delayed
disruption)
(1.7°C by 2100)
Increasing fossil fuel demand and delay of climate policies until 2030 leads to higher emissions. Stronger policy actions
are necessary to compensate for time lost. Global warming can be contained to 1.7°C but the sudden shift in the energy
mix causes more economic and environmental damage than in the baseline. Aggressive and uncertain carbon taxation
policies cause substantial inflationary pressures, stranded assets and financial instability. Frictions in the shift towards
renewables and more limited carbon capture availability than in the accelerated transition scenario require vast gains
in energy efficiency to bring down emissions and therefore global warming by 2050.
1 Source data points and assumptions used for each scenario have been included in our basis of reporting, available at www.rolls-royce.com/sustainability
39
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
The following table summarises the potential impact assessments of each of our identified climate-related risks under the three scenarios (see
page 39). These are presented as potential ranges that depict an estimated financial impact and timeframe. We have concluded that none of
these risks have a material financial impact in the short term, as reflected in our financial statements, see note 1 of the Financial Statements on
page 122�
PERCENTAGE IMPACT ON OPERATING PROFIT BY SCENARIO (CUMULATIVE 2025 TO 2034)
TIMING OF
HIGHEST
EXPOSURE
NET ZERO <1.5°C HIGH TEMP 3.5°C DISRUPTIVE1.7°C
CA D PS NM CA D PS NM CA D PS NM
Changing customer
demand
(1.0) (0.1) (0.3) 0.0 (0.5) 0.7 (0.2) 0.0 (0.3) (0.2) 0.0 0.0
10yrs+
Change in costs due
to carbon pricing
(2.1) 0.3 (0.5) (0.2) (0.6) (0.3) 0.4 0.0 (0.9) (0.1) 0.2 (0.2)
5-10yrs
Change in costs due
to commodity pricing
1.0 0.0 0.1 0.0 (0.7) 0.1 (0.1) (0.3) 0.1 (0.1) 0.4 0.0
5-10yrs
Changing investment
requirement
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
10yrs+
Facility
disruption
(0.3) (0.3) (0.3) 0.0 (0.3) (0.3) (0.3) 0.0 (0.3) (0.3) (0.3) 0.0
10yrs+
Supply chain
disruption
(1.1) (0.3) (0.2) 0.0 (1.1) (0.2) (0.3) 0.0 (1.0) (0.3) (0.2) 0.0
10yrs+
Impact on product
performance
0.0 0.0 0.0 0.0 (0.4) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
10yrs+
Total
(3.5) (0.4) (1.2) (0.2) (3.6) 0.0 (0.5) (0.3) (2.4) (1.0) 0.1 (0.2)
Key: Opportunity Risk CA = Civil Aerospace D = Defence PS = Power Systems NM = New Markets
CLIMATE RISK SUMMARY
40
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
Transition risks and opportunities
Changing
customer
demand
2025-2034: In the markets we serve, overall demand is expected to be robust in each scenario although product mix
may change with customer requirements, particularly in Power Systems where we would see a stronger market for zero
emissions solutions. We expect demand in Civil Aerospace to be strong, driven by clear demographic trends; enabled
by a continued focus on efficiency and the introduction of sustainable fuels. We would expect climate stress to create
opportunities in Defence; both in security and humanitarian response. We see significant opportunity to accelerate the
growth of SMR in the medium term in the net zero and disruptive scenarios.
2035-2050: Longer term, we expect these trends to broadly continue.
Change in
costs due to
carbon pricing
2025-2034: Guided by our Scope 1 + 2 targets based on science, we are taking steps to reduce our exposure to carbon
pricing by decarbonising our own operations and encouraging our suppliers to do the same.
2035-2050: Our long-term Scope 1 + 2 targets are based on science and therefore aligned with a net zero scenario. An
acceleration of our decarbonisation plan would be needed in the disruptive scenario where carbon pricing is modelled
to rapidly escalate in the 2030s.
Change in
costs due
to commodity
pricing
2025-2034: Our markets can sustain the commodity price changes assumed in each scenario. There is medium-term risk
in the high temperature scenario in Civil Aerospace and Power Systems where existing contracts may limit our ability to
pass through higher than expected costs, negatively impacting profits. Future contracts with both suppliers and
customers need to minimise and mitigate our potential exposure.
2035-2050: Longer term, we expect future contracts to mitigate the risk associated with the high temperature scenario.
Changing
investment
requirement
2025-2034: In both civil and defence aerospace markets, new products are expected in the mid-2030s. High carbon
pricing could increase the level of technology required but would also delay new programme launch, allowing resources
to be reallocated and presenting an upside opportunity for current product lines. In Power Systems the net zero and
disruptive scenarios would require an acceleration of investment in new technologies.
2035-2050: Longer term, we see demand continuing for fuel efficiencies, compatibility with sustainable fuels and low
and zero emission solutions.
Physical risks
Facility
disruption
2025-2034: Quantification of potential impact is based on business continuity analysis performed by each division. Future
site strategy, investment in existing facilities and development of new footprint options, needs to continue considering
climate risk.
2035-2050: Longer-term facility disruption is expected to stabilise in the net zero and disruptive scenarios with the
greatest risk in the high temperature scenario where climate adaption will increasingly be required. Our business
resilience activity will consider physical climate risk as a driver.
Supply chain
disruption
2025-2034: Quantification of potential impact is based on business continuity analysis performed by each division. Future
supply chain decisions, including the need for dual sourcing, need to continue considering climate risk.
2035-2050: Longer-term supply chain disruption is expected to stabilise in the net zero and disruptive scenarios with
the greatest risk in the high temperature scenario where climate adaption will increasingly be required. Our supply chain
resilience activity will consider physical climate risk as a driver both directly to our suppliers’ facilities and also logistics.
Impact on
product
performance
2025-2034: Over the next decade the temperature differences between scenarios is relatively limited and therefore
impact on product performance is minimal.
2035-2050: Out to 2050 the risk is relatively stable in the net zero and disruptive scenarios. The greatest increase is in
the high temperature scenario with Civil Aerospace seeing a low percentage increase in shop visits and costs and Power
Systems seeing additional cooling needs across the portfolio.
CLIMATE RISK SUMMARY CONTINUED
41
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
Metrics and targets
Emissions are calculated in accordance with the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and Corporate Value
Chain (Scope 3) Accounting and Reporting Standard (GHG Protocol). See our basis of reporting at www.rolls-royce.com for further detail. We
calculate and disclose our Scope 1 + 2; Scope 3, category 1; and our Scope 3, category 11 emissions. We completed an emissions inventory
exercise in 2019 that demonstrates these represent >95% of our total footprint. This year, we decided to disclose our Scope 3, category 1
emissions as while only 2.5% of our footprint, these are a significant source of absolute emissions. We do not anticipate any material change in
the composition of our emissions since 2019 and therefore we do not disclose the remaining 13 Scope 3 categories.
Scope 1 + 2 emissions
EMISSION SOURCE
1,
2
2019 2020 2021 2022 2023 2024
Scope 1: emissions from office, manufacturing
and production facilities
91 ktCO
2
e 89 ktCO
2
e 83 ktCO
2
e 99 ktCO
2
e 83 ktCO
2
e 78 ktCO
2
e
Scope 1: emissions from product testing
activities
137 ktCO
2
e 124 ktCO
2
e 129 ktCO
2
e 127 ktCO
2
e 96 ktCO
2
e 157 ktCO
2
e
Scope 2: emissions from the purchase of
electricity, heat, steam and cooling for our
facilities
154 ktCO
2
e 94 ktCO
2
e 92 ktCO
2
e 79 ktCO
2
e 72 ktCO
2
e 66 ktCO
2
e
Total Scope 1 + 2 emissions 382 ktCO
2
e 307 ktCO
2
e 304 ktCO
2
e 305 ktCO
2
e 251 ktCO
2
e 301 ktCO
2
e
1 Statutory GHG emissions disclosures are detailed in our SECR statement on page 212
2 Scope 2 emissions are market-based
Scope 3, category 1 emissions
EMISSION SOURCE
3
2019
4
2020
4
2021
4
2022
4
2023
4
2024
Emissions from purchased goods and services,
by spend
– – – – – 2.18 MTCO
2
e
3 Our Scope 3, category 1 calculation has been calculated using spend emission factors. Working with our vendors, we will seek to mature this approach from 2025
4 Reporting of Scope 3, category 1 started in 2024 and so no data is available for prior years
Scope 3, category 11 emissions
EMISSIONS SOURCE
5
2019 2020
6
2021
6
2022 2023 2024
Use of sold products on a fossil fuel based
pathway (with weight based adjustment)
7
129.3 MtCO
2
e – – 85.7 MtCO
2
e 96.8 MtCO
2
e 83.7 MtCO
2
e
Use of sold products on a fossil fuel based
pathway (without weight based adjustment)
566.3 MtCO
2
e – – 247.4 MtCO
2
e 305.6 MtCO
2
e 298.9 MtCO
2
e
Use of sold products of a sustainable fuel based
pathway (with weight based adjustment)
7
111.2 MtCO
2
e – – 70.0 MtCO
2
e 74.7 MtCO
2
e 60.7 MtCO
2
e
Use of sold products of a sustainable fuel based
pathway (without weight based adjustment)
462.4 MtCO
2
e – – 185.1 MtCO
2
e 218.8 MtCO
2
e 204.5 MtCO
2
e
5 Civil Aerospace data adjusted to include one quarter delay in year one of operations. Historical data has been restated to reflect this
6 Reporting of Scope 3, category 11 started in 2022 and so no data is available for interim years
7 Weight based adjustment is not applied to the Power Systems portfolio due to the complexity and variety of product applications. It is not appropriate for all applications such as
stationary power generation
Scope 3, category 11 emissions
Emissions associated with use of sold products by our customers or end-use customers comprise the majority of our emissions footprint. There
has been a decrease in our absolute Scope 3, category 11 emissions compared with 2023. This has mostly been due to a change in sales mix within
Power Systems. A greater percentage of the sales have been products in lower running hour applications such as back-up generators. Civil
Aerospace and Defence emissions were broadly stable with a slight increase and decrease, respectively, due to engine sale volume changes.
42
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
SHORT TERM MEDIUM TERM LONG TERM
2025-2029 2030-2034 2035-2040 2041-2045 2046-2050
Scope 1 + 2
46% reduction in Scope 1 +2 emissions Net zero operations
Scope 3,
category 11
All products are compatible with
net zero operation by 2050
Other
Transition plan
Ambition
We are committed to reaching net zero Scope 1 + 2 greenhouse gas emissions by the end of 2050.
We recognise the role of interim emissions reduction targets in helping us and our stakeholders monitor progress against our long-term
decarbonisation goal. Rolls-Royce will reduce Group Scope 1 + 2 greenhouse gas emissions (including product testing) by 46% by the end of
2030 against a 2019 baseline�
In recognition of the importance of decarbonising our own operations, as of 2025, 10% of management LTIP will be linked to delivering progress
to the 2030 reduction target for Scope 1 + 2 emissions.
We also acknowledge that the largest contribution to our emissions footprint comes through the use of our products and so we are committed
to demonstrating that all our products are compatible with net zero operations by the end of 2050. We will also support the achievement of
industry net zero Scope 3, category 11 (use of sold products) greenhouse gas emissions by the end of 2050.
We will continually monitor and assess our climate impact and develop appropriate new targets and metrics to ensure that these impacts are
properly measured and understood.
Action plan
We recognise the increasing expectation for companies to develop and disclose a detailed transition plan outlining the steps they are taking to
align with a low and net zero global economy. To further align with our understanding of the Transition Plan Taskforce (TPT) recommendation
principles we are disclosing additional details in our transition plan summary below. In 2024, we conducted the first phase of our sustainability
strategic review delivering a more granular transition plan with defined metrics and targets that will support our transition to net zero.
Continuous reduction of energy consumption
Continuous product efficiency improvements (new product development and existing product upgrades)
Continued use of sustainable fuels in our product testing
Continued product compatibility with sustainable fuels
Develop low/zero carbon solutions such as battery storage systems, hydrogen reciprocating engines and microreactors
Engagement/advocacy with relevant governments, policymakers and stakeholders on the energy transition
Focus of decarbonising electricity
and heating
Further expansion of
sustainability topics
Decarbonisation of complex process heat, decarbonisation of generation assets and securing long-term supply of zero
carbon electricity
2030 2050
2050
SMR design manufacture
and build first units
SMR first
orders
SMR ramp up volumes
New Power
Systems products
Next gen Civil
Aerospace engines
New nuclear
products
New Defence
products
43
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
Decarbonising our operations, facilities, product testing and
business activities
We have a detailed plan to achieve our 2030 Scope 1 + 2 target. There
are five main areas of focus between now and 2030:
— decarbonising electricity;
— decarbonising heating;
— improved operational efficiency;
— reducing test emissions; and
— decarbonising transport.
To achieve these aims, we have a costed plan for the period to 2030.
The largest contribution to our emissions reduction will come through
a move to renewable and low carbon electricity sources. Our strategic
priority in this area is on-site generation, supplemented by a multi-year
Energy Attribute Certificate (EAC) strategy. This strategy includes
multi-year options to secure compliant EACs including Private wire
Power Purchase Agreements (PPAs), Sleeved PPAs, VPPAs and bundled
contracts. By 2030, we plan to be powered by 100% renewable and
low carbon electricity sources with a few geographical exclusions where
this is not technically feasible.
To reduce test emissions we will continue to use sustainable fuels and
as greater volumes become available we will gradually increase the
volume of the fuels used at a rate that does not impact the validity of
the testing. We are always looking at ways to improve the efficiency of
testing through the deployment of new technology and methods. We
will continue to do this to reduce the time on test, therefore reducing
fuel burn, while maintaining the high standards and credibility of the
testing itself. The ancillary electricity emissions allocated to testing will
be decarbonised in line with the electricity strategy above.
Operations, facility and test emissions reductions plan
to2030 (ktCO
2
e)
Reduce by 46%
251
206
301
304
305
308
382
BASELINE
TARGET
212019
23 24 30
22
BASELINE
TARGET
Decarbonising electricity
Decarbonising heating
Operational efficiency
Test emission reduction
Decarbonising transport
Enabling our customers to operate their products in a way
that is compatible with low or net zero carbon emissions
To enable our customers to operate their current products in a low
carbon or net zero way, we are focusing on improving product efficiency
to burn less fuel and proving sustainable fuel compatibility. We have
been working in partnership with the Royal Air Force as part of the
Defence Suppliers Forum, looking at steps that can be taken to improve
the uptake of sustainable aviation fuel within defence aviation. This
work has been done with a range of Ministry of Defence, industrial and
academic stakeholders. Key conclusions have included changing the
mindset about energy security, re-thinking value propositions and
identifying new commercial models.
Delivering new products and solutions that can accelerate
the global energy transition
As a force for progress we are working to accelerate the global energy
transition through the development of a future product portfolio. The
future portfolio will maintain the current social value it provides by
powering, connecting and protecting people everywhere while being
consistent with a net zero energy transition.
UltraFan, Battery Energy Storage Systems (BESS) and small modular
reactors (SMRs) are in flight technology and product programmes that
will diversify our portfolio and accelerate the global energy transition.
In addition to these programmes, we are exploring alternative fuels,
including hydrogen, to expand the capabilities of existing combustion
technology. We continue to invest in novel technologies and
applications, such as microreactors, to provide even greater social
value to the world while limiting the negative environmental impacts.
All new product decisions will be subject to strategic fit and
investment criteria.
Support the necessary enabling environment with public and
policy support to achieve our collective climate goals
We understand that a successful energy transition requires the
necessary enabling environment. This requires the right external
policies to be in place and for us to collaborate with industry peers and
partners to achieve our collective climate goals.
We are a member of trade associations and industry bodies that
represent our sector and group interests and we inform their work to
help shape the most attractive environment in which to operate our
business. Based on 2024 data gathered to date, we are currently
members of 146 trade associations and industry bodies, excluding
Power Systems. Our memberships are concentrated in the countries
in which we have a significant footprint and reflect the range of
business interests we are pursuing. We will continue to review these
memberships to ensure we are maximising for best value and
strategic fit.
In addition to trade associations, we will continue to engage in aligned
partnerships, such as the UK-Qatar climate technology partnership, to
identify ways to accelerate our plans through technology and industry
collaborations. We will work closely with customers and suppliers to
enable the transition throughout our value chain in the knowledge that
approximately 99% of our emissions footprint is upstream and
downstream of our own operations.
44
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
We are committed to behaving in a way that minimises our impact on
the environment. This means taking personal and collective
responsibility with our business partners to prevent or minimise any
adverse environmental impact from our activities, products and services.
As set out in our health, safety and environment policy, we do this by
striving for resource efficiency and supporting the sustainable handling,
collection, storage, use and disposal of resources. Increasing our
operational resilience in this way is fundamental to the success of our
business and is an integral part of how we work every day.
We focus on our material impacts by optimising energy use; reducing
waste and optimising material efficiency. For each of these focus areas
we implement measures to mitigate, prevent or minimise impacts and
drive progress against our environmental targets. We recognise that
many of our targets mature in 2025, and in phase two of our
sustainability strategic review these will be reviewed and new targets
set to maintain a focus on minimising our consumption and waste.
During 2024, we had a focus on water to better understand our impact.
We completed a stress and scarcity assessment for all our global
locations to identify the biggest risks to our business and improvement
opportunities to the local environment. We identified our highest water
consuming industrial processes and mapped them to the relevant
facilities. The every drop counts innovation portal challenge was
launched internally which focused on reducing freshwater usage in
manufacturing processes and will help inform the creation of a roadmap
to accompany a Group target proposal�
The incentive for circularity is deeply embedded in our business model
given the significant aftermarket and maintenance requirements of our
products. We are focused on the remanufacturing and reuse of
components and pay particular attention to the responsible use of
chemicals, waste and water.
In 2024, we supported the UK Ministry of Defence, Defence Equipment
Sales Authority (DESA) as part of the Tornado 2 Tempest circular
economy pilot. We worked with Additive Manufacturing Solutions Ltd.
to recycle old RB199 titanium fan blades into a metal powder as part
of an atomisation process. This powder was then used as a feedstock
to 3D print a new engine component that was installed and ran as part
of a wider engine test. In addition to demonstrating the resilience and
sustainability benefits of recycling and reusing old material, we provide
the users of our products with a comprehensive programme for spare
parts and service solutions to maximise the performance and value of
our products in use.
Our supply chain plays an important role in our ability to reduce
environmental impacts, build operational resilience and improve
performance against our targets. In 2024, we have been working with
customers and suppliers to ensure we are prepared for and compliant
with new legislation such as the Carbon Border Adjustment
Mechanism (CBAM) and the EU Deforestation Regulation (EUDR).
Energy consumption (MWh/£m) Total solid and liquid waste (t/£m) Recycling and recovery rate (%)
87
78
58
50
59
21201914 23 24 2522
96
76
117
BASELINE
TARGET
4.00
3.58
3.56
3.02
3.21
4.46
4.74
4.02
BASELINE
TARGET
21201914 23 24 2522
63.7
60.0
61.2
68.0
22212019 24 2523
62.4
56.8
62.7
BASELINE
TARGET
Target
Reduce total energy consumption, normalised by
revenue, by 50% by 2025.
1, 2, 3
Reducing our energy demand is integral to our
success in delivering our decarbonisation goals and
reducing our exposure to energy-related risk. Our
normalised energy consumption in 2024 was 50
MWh/£m. This represents a reduction of 432,086
MWh (31%) since 2014. The total amount of energy
consumed in the year was 945,567 MWh, of which
30% came from renewable energy sources, including
1% generated from our own on-site clean energy
installations.
Target
Reduce total solid and liquid waste production,
normalised by revenue, by 25% by 2025.
1, 2, 3
In 2024, our total normalised solid and liquid waste
was 3.21 tonnes/£m, a 20% reduction since 2014.
The total amount of solid and liquid waste generated
in operations was 60.7 kilotonnes, compared to
47.6 kilotonnes in 2014. This includes 23 kilotonnes
of hazardous, primarily chemical, waste. The overall
increase in the volume of waste produced has been
driven by increases in production and in liquid
wastewater that would normally be treated on-site.
We continue to pursue opportunities to prevent or
reduce waste.
Target
Increase the recycling and recovery rate to 68% by
2025�
1, 2
Our recycling and recovery rate for 2024 was 61.2%.
This represents a 1.5% reduction against the 2019
baseline but an improvement on 2023 performance.
Our Power Systems division has a recycling and
recovery rate above 80%. During the year,
5.5 kilotonnes of waste were sent to landfill, a 9%
increase since 2014, primarily due to the increase
in waste foundry sand. We implemented a recycling
solution for waste foundry sand in November 2024,
but the full benefit on both recycling rate and
landfill avoidance will not be realised until 2025.
1 External assurance over selected sustainability data is provided by Bureau Veritas. See page 211 for their sustainability assurance statement
2 Data has been calculated in accordance with our basis of reporting. This and further data is available at www.rolls-royce.com
3 Energy and waste data are normalised by Group revenue (£m)
Responsible consumption
Understanding and minimising our environmental impacts across our operations and
value chain helps ensure we are a responsible and resilient business. We particularly
focus on minimising energy consumption and waste.
OUR PROGRESS IN 2024
Tornado 2 Tempest circular economy pilot completed
Every drop counts innovation portal challenge
Value chain engagement on new legislation
45
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
People and culture
“To be effective as a leader, I always talk about four things: the first is learning; the
second is to always be learning; the third is the power of belief; and finally, to make
a difference, you need to take some risks.”
Tufan Erginbilgic
Changing the way we work, think and behave
2024 has been a record-breaking year, underpinned by our
transformation and the dedication of our colleagues. Our streamlined
approach, built on purpose, vision, strategy and behaviours, has aligned,
energised and mobilised teams, changing the way we work, think
and behave.
Our transformation goes beyond short-term solutions. This means
empowering our people to work with greater agility and efficiency and
a stronger commitment to safety and quality. These priorities will help
us achieve our vision of becoming a high-performing, competitive,
resilient and growing business.
A key focus has been creating a simpler, more efficient organisation.
Consolidating Engineering, Technology & Safety (ET&S), Procurement
and Supply Chain capabilities has reduced duplication, standardised
processes and leveraged best practices. By ensuring clear
accountability and visibility of value creation, we have accelerated
decision making and empowered leaders to focus on performance and
unlocking potential as One Rolls-Royce.
Our new operating model enhances efficiency and cost reduction,
ensuring we remain on track to deliver £200m in annualised savings
by the end of 2025. Where possible, we have successfully redeployed
skilled employees into growth areas, retaining critical capabilities while
simplifying our structure.
In September, we launched our new purpose and behaviours to support
our strategy, providing a clear roadmap to achieve our vision (see page
10). This alignment has energised and mobilised us as One Rolls-Royce,
reinforcing our commitment to innovation, continuous improvement
and the broader impact of our products on society.
Purpose driven leadership
Our leaders are catalysts for change and at the forefront of our
transformation, engaging their teams on our new purpose and
behaviours. By role-modelling these behaviours daily, they make our
purpose meaningful in their work, while fostering an environment of
learning, growth and alignment.
Leadership capability is strengthened through our flagship leadership
development programmes. In 2024, we introduced a new strategic
leadership development programme with the London Business School
for our most senior leaders, complementing our leadership
fundamentals and progression programmes for all leaders. This supports
the acceleration of our transformation by aligning with our strategic
goals and ensuring immediate application in daily work. 68% of all
leaders have participated in at least one of our leadership development
programmes since the introduction in 2021.
OUR PROGRESS IN 2024
Launched our new purpose and behaviours
Introduced Our Voices, a new colleague survey
Launched Your Shares: Gifted, a global employee share plan
Change makers
In 2024, over 1,200 colleagues volunteered to be part of our
change makers network, driving cultural transformation as
One Rolls-Royce. Their role is to promote our new purpose
and behaviours, connect colleagues across the Group and
support change from within. By engaging with leaders and
inspiring others, they help unlock potential, foster
meaningful connections and act as catalysts for change.
Although still in its early stages, the initiative has already
received positive feedback, reflecting strong enthusiasm and
alignment with our purpose and behaviours.
Building on the success of our 2023 BetterUp coaching pilot, we
expanded our investment in 2024, with even more leaders now
participating. Since its launch in 2023, more than 450 leaders have
taken part. Coaching supports self-reflection, learning and team growth,
reinforcing inclusive leadership and a culture of care and belonging.
Our newly launched Our Voices colleague survey provides insights into
the employee experience (see page 18) and increases our leaders’
accountability for driving change. It enables leaders and teams to reflect
on behaviours, celebrate successes and commit to one big change for
meaningful improvement. Over 30,700 of our people responded to our
new survey this year; a 74% response rate. This approach ensures we
continuously enhance the way we work, think and behave, in line with
our new behaviours.
Put safety first
Safety is our number one priority; nothing is more important. We care
about our colleagues, customers and each other. Our put safety first
behaviour (see page 10) reinforces that safety, health and wellbeing
are central to everything we do and promotes a speak up culture. Safety
is everyone’s responsibility and visible, engaged leadership is critical.
Saying something could save someone and we encourage everyone to
act if they notice an unsafe situation.
Employee health and wellbeing, both physical and mental, directly
impact the safety of our people, products and processes. We support
colleagues in leading healthy lifestyles and maintaining overall
wellbeing. We believe all incidents are preventable, focusing on
proactive risk management as the foundation of our safety culture and
a driver of our zero-harm strategy.
Visible, engaged leadership is critical. Senior leaders conduct regular
safety walks, fostering positive conversations and supporting
risk-reduction improvements. Safety moments at the start of meetings
raise awareness of key topics, roles and responsibilities, using real-life
examples to reinforce important messages. In November, our chief
medical officer led a global safety moment on mental health and
resilience as part of our leadership business update.
46
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
Our safety index is a proactive global measure consisting of five
leading indicators: senior leadership safety walks; safety case
improvement activity; HSE alert response; close-out of HSE
non-conformances; and accountable person engagement. In 2024, we
achieved a safety index score of 96%, exceeding our 94% target, an
improvement of 2% from 2023. 2025 is the fifth year of a five-year plan
for our safety index. We will review this metric and make changes, to
ensure that we continue to drive progress on our journey to improving
safety at Rolls-Royce.
We continue to target world class and better TRI rates across our
business. Our total reportable injuries (TRI) rate continued to decline,
reaching 0.29 per 100 employees, a decrease from 2023 (0.32). There
was a total of 126 TRIs in 2024 with 16 incidents resulting in major
injuries. When incidents occur, we share learnings across the Group
to improve controls and prevent recurrence. Knowledge-sharing is a
key part of our transformation, reinforcing safety as our top priority.
TRI rate (per 100 employees)
1
0.29
0.33
23222120
25
24
0.32
0.41
0.43
0.35
BASELINE
TARGET
1 Our TRI rate shows the Group TRI performance (absolute and rate). External assurance
over the TRI data is provided by Bureau Veritas (see page 211)
Supporting colleagues to LiveWell
Our LiveWell programme empowers colleagues to take personal
responsibility for their health and wellbeing while supporting others
to do the same at a local level. This global, evidence-based
accreditation scheme helps sites, facilities and teams assess their
workplace across three key areas: healthy bodies; healthy minds; and
healthy workplaces. It enables teams to set data-driven goals and remove
barriers to wellbeing. Currently, LiveWell operates in 21 countries,
covering 84 workplaces globally.
We provide tools and resources to support mental, physical and
financial wellbeing through our internal wellbeing site and run events
year-round. Our 2024 World Mental Health Day promotion included
interactive workshops led by internal and external experts, with over
21,000 colleagues participating and significant engagement on
internal channels. In June, we also hosted our financial wellbeing event,
money for humans, focused on mindful financing.
Mental health remains a key focus. It is identified as a risk on our HSE
risk profiles, with regular reporting to the Executive Team on related
absence trends and support service uptake. In 2024, we conducted a
gap analysis with external specialists against the ISO 45003 standard
for psychological health and safety, shaping our 2025 strategy for
managing workplace mental health risks. Data from our workplace
pressure risk assessment tool, further informs risk mitigation efforts.
Leaders play a critical role in managing and supporting good mental
health at work and we make mental health training a requirement for
our leadership roles. Our global mental health champion network, a
group of trained volunteers offering guidance and support, grew by
18% to 855 champions across 13 countries. We continue to expand this
network, sharing best practices and providing new toolkits to help
champions and leaders connect colleagues with support resources.
A skills-powered organisation
Skills, capabilities and learning are central to transforming how we work,
think and simplify operations. Moving to a skills-powered organisation
makes us more agile, adaptive and resilient. By focusing on skills rather
than job structures, we can better identify, develop and deploy critical
expertise to align with our strategic priorities.
A key example is the creation of our ET&S function (see page 46), which
leverages skills across the Group. This new function has helped close
skills gaps through internal mobility, reducing costs by minimising
external hiring. We map colleague skills to strategic priorities,
enhancing both individual growth and organisational capability. Our
skills profiles system achieved 40% global uptake in 2024, up from 20%
in 2023�
To drive skills-based workforce planning, we launched the Enterprise
Capability Committee (ECC), which reviews divisional plans and optimises
productivity by aligning skills with business needs. We also use gigs,
being short-term, project-based tasks, to enhance learning and embed
agile ways of working. Digital systems and AI power an internal
marketplace where colleagues can drive their own learning and skill
development. This dynamic skills ecosystem enables colleagues to take
ownership of their growth while enabling the business to utilise talent
more effectively.
Our skills-powered approach has gained external recognition,
featuring in case studies with Gartner and AON. In the UK, we
contribute to government and industry forums to shape education
policies that better prepare young people for employment.
Skills development is embedded in Leatro, our Group-wide learning
platform, enabling colleagues to learn flexibly. In 2024, we launched
the Winning Together learning hub, which now offers over 4,000
programmes aligned with our strategic priorities and tagged with
relevant skills. We continuously refresh these resources to meet
evolving business needs.
Aligned with Our Code and Group policies, we also run an annual
mandatory learning programme covering values, behaviours and
compliance. In 2024, 98% of our colleagues completed all mandatory
learning (2023: 96%). Our continued investment in learning and
development in 2024 was £28m (2023: £20.8m), delivering over 1 million
hours of formal learning (2023: over 757,000 hours).
“We promote a growth and
experimentation mindset,
encouraging curiosity and continuous
learning to drive better outcomes.”
47
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
Driving a culture of high performance and engagement
We continue to reinforce a culture of meritocracy to drive
high-performance and business transformation.
This is critical to our business and leadership strategies and in how we
attract and retain talent by fostering a positive work environment where
everyone feels valued, respected, safe and empowered to thrive.
Throughout the course of 2024, we have taken a more outcomes and
systems-focused approach to drive change for increased cultural
engagement by:
— Embedding new purpose and behaviours to ensure we are explicitly
clear on what is most important to us and what we expect to see
consistently from all employees. The behaviours have been integrated
into our talent system to further reinforce and make this stick when
it comes to how we hire, assess, select, reward and recognise
individuals. One of our key behaviours is ‘do the right thing’ which
looks to bolster a culture of caring which is created through respect,
fairness and transparency.
—
Creating a new engagement index and assessment methodology,
77% of colleagues (-2pts vs benchmark) responded favourably about
their work environment, agreeing they feel valued, respected and
empowered to thrive, a strong foundation for future measurement.
— Launching new leadership expectations which reinforces the need
to build a high trust environment, as well as zero tolerance for
mediocrity where we always hire the best people to build talent and
capabilities. These new expectations have been communicated and
are a cornerstone to our leadership strategy and system.
—
Implementing a new enterprise talent system which ensures a
progressive, standardised approach to how we source, attract, develop
and retain the best talent. For example, we have a much more
comprehensive approach to conducting talent reviews to ensure we
have better line of site and visibility of talent across the organisation,
and maintain focussed on transferable skills so we can consider
broader career paths for individuals. We continue to offer additional
support to candidates who declare a disability at the application
stage and support our assessors and interviewers to ensure a fair
process for all. We are committed to fair and equal consideration for
applicants with disabilities and actively support employees who
become disabled while working with us by making adjustments to
enable their continued employment.
—
Celebrating the uniqueness of all colleagues through our ‘being like
me’ campaign. This remains a powerful engagement tool, inviting all
to share their unique personal experiences and learn from one another.
Since its introduction we have seen over 137 individuals voluntarily
take part. It is an important part of our journey to embed a culture
of care into the workplace.
—
Continued emphasis on health, safety and wellbeing, fostering a
strong speak-up culture. In 2024, 21,000 colleagues engaged in
world mental health day sessions. We achieved a 96% safety index
score, surpassing our 94% target and improving by 2% from 2023.
Our TRI rate dropped to 0.29, a 12% improvement from 2023.
Enabling high performance
We are embedding a differentiated performance culture where clear
expectations, continuous improvement and disciplined monitoring drive
results. Our performance management framework, implemented in
2023, aligns individual goals with strategic priorities, ensuring a focus
on high-impact actions and continuous improvement.
We connect reward and recognise both business success and
individual contributions with differentiated outcomes for those
delivering the greatest impact. Our core programme for leaders and
most colleagues includes regular check-ins, performance reviews and
biannual calibration, fostering accountability and alignment with our
strategic priorities.
Our agile, outcome-focused approach encourages ongoing performance
conversations, ensuring individuals understand what good looks like
to continuously learn and improve.
Your Shares: Gifted
In September 2024, we launched the Your Shares: Gifted
employee share plan, awarding 150 shares to every employee.
With 99% workforce participation, this initiative has
transformed our share ownership culture, strengthening
alignment with our purpose and strategy.
In 2025, we are introducing Your Shares: Matched, enabling
colleagues to continue sharing in our success through
affordable share ownership.
Sharing in our success
In 2024, we enabled colleagues to share in our success through the
Your Shares: Gifted global employee share plan (see page 107). Our
global incentive arrangements align directly with the Group’s strategy,
cascading from Executive Director incentive metrics (see pages 99 and
100). The Executive Team have clear performance contracts linked to
strategic priorities and personal reward packages.
Aligned with this, we increased pay transparency in 2024 by sharing
US and UK leadership pay scales to build trust and to reinforce a
high-performance culture.
We remain committed to fair pay globally, conforming to all national
pay laws and progressing our work on living wage standards in line with
the Corporate Sustainability Reporting Directive (CSRD). In the UK, we
pay above Living Wage Foundation standards and require suppliers to
meet minimum/fair wage commitments via our global supplier code of
conduct.
“Leaders play a critical role in
managing and supporting good
mental health at work and we make
mental health training a requirement
for our leadership roles.”
48
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
Our total reward philosophy is built on five key principles:
Differentiated for our employees – we seek to offer
flexible, merit-based choices to support our
workforce and promote inclusion
A great colleague experience – we aim to be simple,
engaging, valued, fair and understood
Attractively positioned – to ensure we retain core
competencies and support the growth of skills and
capabilities required for the future
Clearly aligned to delivering high performance –
rewarding achievement of ambitious short-term and
long-term targets
Broader than financial reward – we care about employee
wellbeing, creating an environment where everyone can
be at their best with career development and recognition
Community and STEM outreach
We are committed to increasing access to quality education and
supporting underrepresented young people in STEM, helping them
achieve their aspirations and overcome barriers to success. Our STEM
programmes engage and inspire young people to develop the critical
skills needed for a career in STEM, by demonstrating how science,
technology, engineering and maths can help solve real-world
challenges�
In 2024, our STEM ambassadors supported programmes worldwide:
—
In India, we continued to support our Wings4Her programme for
girls in underprivileged communities by providing tutoring,
mentoring, career guidance and scholarships. Working with
governmental pre-university colleges, our support enabled 400 girls
to continue STEM studies.
—
In the UK, we celebrated 20 years of the Schools Prize and have
awarded £1.6m to more than 600 schools since 2004. The Schools
Prize also provides continuous professional development for the
teachers through our partnership with STEM Learning, supporting
more than 300 teachers and estimated to impact the learning of
28,000 students in 2024.
We reached over one million people through STEM in 2024 and are
now 45% towards our goal of inspiring 25 million young innovators by
2030. Our people are at the heart of all our programmes and
contributed 58,785 hours (2023: 37,680) to community investment and
education outreach programmes in 2024. Our global charitable
contributions and community investment for 2024 totalled £4.3m (2023:
£4.3m), including £398,000 from a share forfeiture programme carried
out in earlier years.
Looking ahead
In 2025, we will continue to embed our purpose and behaviours,
reinforcing new ways of working, to drive efficiency, operational
excellence and strategic execution. Our focus remains on building a
sustainably distinctive business that benefits all our stakeholders.
Our 2024 performance reflects One Rolls-Royce in action, united in
delivering our mid-term targets and beyond, shaping the future with
innovation and impact.
“We care about employee wellbeing,
creating an environment where
everyone can be at their best with
career development and recognition.”
49
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
People metrics
42 , 4 00 employees total (monthly average)
1
Corporate
Civil Aerospace – 18,700
Defence – 12,500
Power Systems – 9,900
New Markets – 1,200
Corporate – 100
1 Segments are defined in note 2 on page 137
Employees in 48 countries (monthly average)
2
UK – 21,900
Germany – 10,000
US & Canada – 6,000
Italy – 900
Singapore – 700
India – 600
Rest of world – 2,300
2 Employee headcount data represents permanent employees and excludes contractors
Our diversity metrics at 31 December 2024
3
Female diversity percentage tracking and 2025 targets
2023 2024
2025
target
The Board
4
50% 50% 50%
Executive Team 30% 30% 33%
ELG 23% 26% 35%
Senior leaders
5
24% 25% 30%
All employees 18% 19% 25%
Ethnic diversity percentage tracking and 2025 targets for UK
and US
6
2023 2024
2025
target
UK ethnicity 11% 12% 14%
US ethnicity 17% 17% 20%
Gender diversity
Female Male Total Female (%)
The Board 6 6 12 50%
Executive Team (ET) 3 7 10 30%
ET, Chief Governance Officer
and direct reports 24 49 73 33%
ELG 24 68 92 26%
Senior leaders
5
24 73 97 25%
All employees 7,811 34,400 42,211 19%
3 The data for diversity information is showing permanent employee year-end actuals
4 The Board diversity policy aims for gender parity
5 Senior leaders are defined in the Companies Act 2006 (those who have responsibility for
planning and directing or controlling the activities of the entity or a strategically significant
part of it). We do not include all subsidiary directors in the definition of senior leaders as
this would not accurately reflect the leadership pipeline. We have a large number of small
and dormant subsidiaries and the composition of these Boards reflects their level of
activity. Accordingly, senior leaders refers to the Executive Team and the ELG
6 For ethnicity information, we are only able to monitor and track this in the UK and US and,
therefore, this only includes businesses in these locations. The population is only those
who have chosen to disclose this information
Throughout this Annual Report, the information we disclose is in accordance with our
reporting obligations as a UK registered company listed on the London Stock Exchange. We
continue to keep our policies, procedures and targets under review to ensure compliance
with the laws and regulations of the jurisdictions in which we operate. This includes our
ongoing review in light of recent changes to US Federal law, to ensure we remain compliant
with anti-discrimination laws.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUSTAINABILITY
We are committed to upholding high ethical standards to create a
working environment where everyone at Rolls-Royce and those we
work with can be at their best. Our code of conduct (Our Code) and
associated Group policies guide our actions and decisions to ensure
we can be proud of the way we behave and the way we do business.
In 2024, Rolls-Royce launched its new purpose and behaviours which
includes the behaviour, do the right thing. We are engaging with our
employees across our global footprint on the important role they play
in maintaining our high standards of ethics and compliance. In addition,
as part of our 2024 annual mandatory learning programme, our core
compliance learnings included our gifts and hospitality, data privacy
and export control policies. We require all our employees to annually
certify their understanding of Our Code.
We strive to create an environment where everyone feels valued and
actively encouraged to speak up about questions or concerns without
fear of negative consequences. This is a vital part of enhancing our
culture of inclusion and belonging. Everyone can use our speak up
channels, whether or not they are an employee. We provide multiple
ways to raise a concern, including the Rolls-Royce speak up line which
enables concerns to be raised anonymously and confidentially in
multiple languages. A speak up report highlighting key statistics is
made available to employees at regular intervals to remind them of the
importance of speaking up and our annual speak up report is published
on www.rolls-royce.com
We have a zero tolerance approach to misconduct of any kind and will
take disciplinary action, where appropriate, including dismissal, in the
event of a breach of Our Code. In 2024, 132 employees (2023: 132) left
the business for reasons related to breaches of Our Code. The number
is consistent with last year which shows that our enhanced consistency
of tools across the Group which record and classify our dismissals
continue to work well. It also demonstrates our commitment to
enforcement of Our Code.
Supply chain due diligence
Our global supplier code of conduct sets out the ethical principles we
expect from our suppliers. All suppliers are required contractually to
adhere to this or a mutually agreed alternative. We work closely with
our partners to continually improve the environmental and ethical
performance of our supply chain. Partnering with a leading third-party
provider, we conduct sustainability screening and assessments to
understand the inherent sustainability risks within our supply chain and
take appropriate mitigating actions where required. Prioritised
suppliers are requested to complete a comprehensive assessment of
their sustainability risk management. Where risks are identified,
suppliers are asked to put in place improvement plans and offered
support and resources to help with this via our third-party partner. To
enhance the effectiveness of our due diligence controls, we also updated
our partner contracts with specific sustainability clauses in 2024.
Anti-bribery and corruption
We do not tolerate bribery and corruption in any form, as set out in
Our Code and associated anti-bribery and the corruption policy.
We routinely check and test the effectiveness of our anti-bribery and
corruption programme to manage proactively the associated risks (see
page 56). In 2024, we continued to monitor our controls through
compliance specific assurance activities, site visits and reviews of
financial and operational data. These activities are overseen by the
Nominations, Culture & Governance Committee (see page 80).
We conducted a deep dive review of anti-bribery and corruption risks
which was presented to the Executive Team in May and the Board in
July. Follow up actions from the discussion include monthly sessions
with the Chief Financial Officer and the General Counsel to ensure to
risk mitigations are progressing in a cohesive manner.
In October 2021, we entered into a leniency agreement with the
Brazilian offices of the Comptroller General and Attorney General in
relation to historic bribery allegations. As part of this, we agreed to
implement improvements to our integrity programme in Brazil and to
provide three reports to the Brazilian Comptroller General setting out
all steps taken. Three reports were submitted in August 2022, February
2023 and November 2023. In the final report, we confirmed all required
enhancements had been successfully completed. We received official
confirmation in April 2024 that we had been released from the
monitorship and that the leniency agreement had concluded.
Human rights and anti-slavery
Rolls-Royce is committed to protecting and preserving all
internationally recognised human rights of everyone who may be
impacted by our business activities along our value chain, in so far as
is possible. This includes upholding the principles set out in our global
policies and processes, including our global human rights policy,
supplier code of conduct and Our Code, to fulfil our legal obligations
and mitigate the risk of potential complicity in human rights violations.
During 2024, we took steps to further strengthen our human rights risk
framework, including reviewing our existing policies and governance
structure with the support of external counsel. As part of our due
diligence activities, we expanded the coverage of our supplier
sustainability assessments and carried out deep dive impact assessments
on selected higher-risk business relationships.
Our approach includes conducting continuous external screening
services, internal checks on contracts, certifications of the subsidiary
or supplier, and specific examinations based on prioritised risks. In the
event that an actual or potential human rights impact is identified,
preventative, corrective or remedial measures may be assigned as
appropriate in a systematic and proportionate manner. Each business
unit now has an appointed human rights officer in place and we have
rolled out dedicated human rights training to these specialist and other
relevant roles. These activities are overseen by the human rights
steering committee and the Nominations, Culture & Governance
Committee (see page 80).
Find more information on our anti-slavery and human trafficking statement,
see the Group policies and global supply chain page at www.rolls-royce.com
For more information on our ethics approach see the Nominations, Culture &
Governance Committee report on page 80 or view Sustaining our culture of
integrity document available at www.rolls-royce.com
OUR PROGRESS IN 2024
Released from monitorship and conclusion of leniency agreement with
Comptroller General of the Union in Brazil
Increased maturity in fraud risk assessment and incident management
Launch of corporate contributions reporting and approval
Ethics and compliance
We are committed to ensuring that all our employees do the right thing and to creating
a working environment where everyone can be at their best.
51
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
SUSTAINABILITY
The Rolls-Royce risk management and internal
control framework
Taking risks is an essential part of running a robust, profitable business.
Effective risk management helps us to identify anything that could
hinder or support the effective implementation of our strategy and
business model, then take action to address it. In order to achieve this,
we have an established risk management and control framework, shown
in the diagram below.
Our framework aligns with international standards for managing risk
and sets out requirements across the Group for all risk categories. This
includes climate, finance, legal, operations, technical and programmes,
as well as providing guidance, training and tools.
The Board is ultimately responsible for our approach to risk
management and internal controls. In February 2024, it endorsed the
framework in operation for that year, monitoring its effectiveness by
assessing:
1� How effective the framework was at managing the principal risks:
—
Individual principal risks with reports throughout the year at the
appropriate Board Committee, led by the risk owner (with a focus
on controls in place to manage the risk and mitigating actions
required to close any gaps). See pages 75 to 76 for a detailed list
of these reviews.
—
A report by the head of enterprise risk management covering
the principal risk portfolio to consider the current overall risk
levels compared to risk appetite and our own internal targets.
2�
The Group’s internal financial controls (at the Audit Committee) with
financial reporting controls being subject to periodic review by the
Group’s internal controls team.
3� The effectiveness of the framework more broadly at improving the
risk culture and capability of the organisation, including an annual
risk maturity assessment.
4�
The input from assurance providers, such as the internal audit team,
where risk-related findings are taken into account in managing
related risks.
See page 53 for more on progress in 2024 and future risk improvement
plans, as well as page 84 for more information on internal audit.
The Board confirms that it has monitored the effectiveness of risk
management and internal controls throughout the year, in accordance
with the Code.
The risk management framework
Risk appetite
Risk oversight
Standard
Policy
Risk governance Risk process
Establish context and objectives
Design and deploy controls
Mitigating actions
Organisation and culture
Risk toolkit
Guidance
Identify
Quantify
Evaluate
Training
Templates
Tools &
technology
Manage
incidents
Assure control
effectiveness
Monitor, review, report, escalate
Continuous improvement
What and why How
Assess risk
Manage risk
Support
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Principal risks
Risk maturity and continuous improvement
We continually look for ways to improve how we manage risks, such as
action planning to bring a risk level down or developing training to
support risk owners. We also ensure the framework itself is fit for
purpose through regular benchmarking against best practice risk
standards as well as active participation in industry groups.
Improvements in 2024
Following the implementation of the new risk framework and oversight
approach in February and the implementation of a new organisational
design, we have increasing confidence in the assessment of our risks,
with a real focus on mitigating actions to get to an agreed target risk
level, as well as more transparent reporting. We have also seen a
positive shift in the risk culture of the organisation, with strong risk
awareness and engagement.
The new framework places even more emphasis on the importance of
controls and assurance in managing risks well and our risk, controls
and assurance (RCA) programme has continued to support the design
and documentation of controls for principal risks, embedding these
controls in our management system.
2025 and beyond
Plans are now in place to ensure our readiness to meet the additional
reporting requirements of the 2024 UK Corporate Governance Code.
The RCA programme is a key foundational activity in relation to
principal risks and, as such, will form part of the integrated Group-wide
plan, which also incorporates other areas such as financial and
non-financial reporting (including sustainability reporting requirements)
and compliance.
We will maintain focus on completing agreed actions to continue to
mitigate our principal risks within appetite and on assuring the
effectiveness of our internal controls.
How Rolls-Royce uses the framework to manage risk
Risk governance
Risk governance sets out the roles and responsibilities, as well as the why and the what, of risk management. Clearly outlining our approach to
risk oversight enables the Board and Executive Team to receive the risk information it needs to consider: the nature of our principal risks
(individually and as a portfolio); their current and target risk levels, including whether or not they are within our risk appetite; the extent to which
mitigation is effective; and the status of associated improvement actions. In addition to the Board oversight outlined on pages 74 to 75, the
Executive Team reviews individual and portfolio principal risk reports, with the latter (with the addition of divisional level risk information), being
considered as an input into the five-year planning process. These reports contain the current risks, their status, controls information and action
plans to remediate any gaps.
Risk process
We use the framework to set expectations across the Group on the steps to follow when managing and talking about risks:
Identify
Risks can be identified by anyone across the Group, including emerging risks as well as what could stop us achieving our
strategic, operational or compliance objectives or impact the sustainability of our business model (described on pages 14
and15.
Quantify and
evaluate
Risk owners quantify the likelihood of a risk materialising and the potential impact if it does, taking into account current
effective controls, and then deciding on a plan of action.
Control and
assure
Risk owners design, implement and assure the effectiveness of controls to manage the risk, supported by different assurance
providers using a three lines of defence approach (detailed in the principal risk tables from pages 55 to 60).
Act
Risk owners identify where mitigating actions are needed to bring the risk within appetite, assessing the Group’s ability to
reduce the impact of risks that materialise and ensuring the costs of operating a control are proportionate to the benefit
provided.
Monitor,
review and
report
Risk owners report their assessment of current and target risk scores to local leadership as well as other review forums
(including the Board and its Committees and the Executive Team) as needed depending on the level of the risk, for
support, challenge and oversight.
Risk toolkit
The above are underpinned by a toolkit of guidance, templates, tools and training. For some principal risks, such as safety and compliance, there
are mandatory training and policies in place, linked to performance management and remuneration, which all our people are required to complete
and comply with (see page 47 for details).
The framework rests on the appropriate organisation and culture, with individuals at all levels (starting with the Executive Team) demonstrating
the principles of good risk management and the capabilities to deliver on these. An independent enterprise risk management team
supports the divisions and functions in their effective management of risk.
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PRINCIPAL RISKS
Emerging risks
Rolls-Royce has processes in place to identify emerging risks, being
uncertainties that could become a principal risk of the future. These
include horizon scanning for resilience, regulatory and compliance
changes (including those relating to ESG) and disruptive new
technologies, as well as analysing external data. Outputs are assessed
by subject matter experts and, where we identify any potential new
impacts on Rolls-Royce, we:
— record a new risk;
—
amend an existing risk and manage this in accordance with our
framework as described on page 52; or
—
add the emerging risks to our watch list for investigation and
monitoring.
The Board considers emerging risks and responses annually and
concluded that, currently, many of the external areas of focus,
geopolitical tensions, extreme weather events and supply chain
disruption are captured as causes in our existing principal risks. New
risks added in 2024 relate primarily to fuel and energy sources both
threats and opportunities. We have also seen an increase in societal
risks, such as social polarisation, as described in the table above.
Principal risks
Principal risks are owned by one or more members of the Executive
Team and subject to a review by the Executive Team at least once each
year, ahead of a review by the Board or a Board Committee. Risks are
managed in relation to achieving target risk appetite or beyond. The
actions needed to achieve or maintain these target positions are also
monitored.
Changes to the principal risks profile in 2024
We continue to review our principal risks, their dynamic nature and
how well they are managed. During 2024, we have redefined two of
our previous risks, technology and climate change (now energy
transition), to reflect our strategy development in these areas.
Principal risks remain categorised as either pillars or drivers, with
drivers being those risks that could affect the likelihood or impact of
one or more of the risk pillars.
Changes in overall risk levels
The overall risk level within our portfolio has reduced during 2024, as
individual risks have reduced and/or we have improved control
effectiveness. Details of these changes can be found in the following
tables, starting on page 55, which detail the current principal risk pillars
and drivers together with how we manage them and assure them in
addition to internal audit and the oversight provided by the Board and
its Committees.
Board confirmation
The Board confirms that it has assessed and monitored the Group’s
principal risks throughout the year, in accordance with the 2018 UK
Corporate Governance Code.
Examples of our new emerging risks
EMERGING RISK TITLE AND DESCRIPTION POTENTIAL IMPACT TO ROLLS-ROYCE OUR RESPONSE
Demands on fuel stocks: competing use for feed
stocks (for example, food versus fuel),
cross-sector demands for feed fuel and the
expansion of AI increasing demand on base
energy requirements.
Threats:
— Reduce our access to fuel sources and
supplies
— Hinders our ability to achieve
decarbonisation across the full portfolio
Investigate and monitor:
—
Continue to horizon scan and explore
alternatives
—
Monitor demand in the aviation sector as part
of strategic planning
—
Continue to develop our technology
portfolio
Alternative fuel sources: development
of alternative fuel sources, such as:
— Carbon-based liquid fuels
— Ammonia (carbon free fuel)
— Methanol
— Hydrogen
Opportunities (varying according to fuel):
— Low cost/high power solutions
— Potential for net zero carbon emissions
— Improved air quality
Investigate and monitor:
— Studies underway
— Pilots in development
—
Technologies being mapped to better
understand the threats and opportunities
Societal polarisation from increased access to
propaganda (also linked to misinformation and
disinformation).
Threats:
— Increase in conflict and division in the
workplace
— Increased shareholder activism
— Increased insider threat risks
Manage according to our risk framework:
Resources are now required and in place for
additional monitoring, such as insider threats
and likelihood of action.
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PRINCIPAL RISKS
PRINCIPAL RISKS – PILLARS
Change in risk level:
Increased
Static
Decreased
Safety
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
People: Failure to create a place to work which minimises
the risk of harm to our people, those who work with us and
the environment would adversely affect our reputation
and long-term sustainability
Product: Failure to provide safe products
People:
—
Our HSE management system includes controls designed to reduce our safety
risks as far as is reasonably practicable and to meet or exceed relevant company,
legal, regulatory and industry requirements
— Crisis management framework in place
Product:
— Our safety assurance framework includes controls designed to reduce our safety
risks as far as is reasonably practicable and to meet or exceed relevant company,
legal, regulatory and industry requirements
— We verify and approve product design
— We test adherence to quality standards during manufacturing
— We validate conformance to specification for our own products and those of our
suppliers
— We mandate safety awareness training
— We use engine health monitoring to provide early warning of product issues
— We take out relevant and appropriate insurance
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
People
— Safety case interventions
— HSE audit team
Product
— Product safety assurance team
— Technical product lifecycle audits
— Product safety board
—
Safety, Energy Transition & Tech Committee
— Executive Team
— Our role in society
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
This risk has improved during 2024, due to the strengthening of controls around people safety. However, safety is one of our core behaviours
(see page 10) and the first priority for all our colleagues. We continue to prioritise action plans to improve people and product safety.
People safety related metrics and more information on how we are reducing safety risks can be found on page 18.
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PRINCIPAL RISKS
PRINCIPAL RISKS – PILLARS CONTINUED
Change in risk level:
Increased
Static
Decreased
Compliance
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Non-compliance by the Group with legislation or other
regulatory requirements in the heavily regulated
environment in which we operate (for example, export
controls; data privacy; use of controlled chemicals and
substances; anti-bribery and corruption; human rights;
and tax and customs legislation). This could affect our
ability to conduct business in certain jurisdictions and
would potentially expose us to: reputational damage;
financial penalties; debarment from government contracts
for a period of time; and suspension of export privileges
(including export credit financing), each of which could
have a material adverse effect.
— Comprehensive suite of Group mandatory policies and processes and controls
— Third-party due diligence
— Investigation of speak up cases
— Investigations into potential regulatory matters
—
Our financial control framework is designed to reduce financial reporting and
fraud risks
— Data classification to meet internal and external requirements and standards
— Export control framework
— Digital screening and IT compliance tools
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Compliance teams
— Financial controls team
— Audit Committee
— Board
—
Nominations, Culture & Governance
Committee
— Executive audit committee
— Our business model drivers
WHAT HAS CHANGED IN 2024?
Our compliance risks have reduced in 2024 due to the improved effectiveness of our controls to manage the risks. To be even better, we are
now looking at increasing the automation of controls around our export control framework.
Read more about ethics and compliance on page 51.
Strategy
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Failure to develop an optimal strategy and continuously
evolve it, investing in key areas for performance
improvement and growth (taking into account risk reward),
making difficult decisions for competitive advantage and
the right portfolio and partnership choices, could result
in us underperforming against our competitors and
significantly reduce our ability to build a high-performing,
competitive, resilient and growing business.
— Strategic review process
—
We benchmark our capabilities and performance against our competitors,
the market and other external metrics
— R&D spend aligned to our strategy, with a smaller, more focused portfolio
— Investment in R&D opportunities to support the development of new products or
services to protect and sustain our future market
—
Investment decision making process to improve the quality, delivery and
durability of our existing products and services
—
Horizon scanning for competitive threats and opportunities, including patent
searches
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Group strategy team
— Challenge from external advisers
— Board
— Executive Team
— Investment committee
— Our role in society
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
Overall, this risk remained stable in 2024. We continued to iterate detailed strategies, for example, relating to sustainability and technology
(see separate principal risk drivers on page 58).
Our effectiveness at managing this risk improved throughout the year, with robust controls operating over our investment decision-making
processes and integrated performance management which drives strategic priorities (such as through the five-year planning process).
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PRINCIPAL RISKS
PRINCIPAL RISKS – PILLARS CONTINUED
Change in risk level:
Increased
Static
Decreased
Execution
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Failure to deliver as One Rolls-Royce on short- to
medium-term financial plans, including efficient and
effective delivery of quality products, services, and
programmes, or falling significantly short of customer
expectations, would reduce our resilience and have
potentially significant adverse financial andreputational
consequences, including the risk ofimpairment of the
carrying value of the Group’sintangible assets and the
impact of potential litigation.
—
Performance management of our operational execution and monitor performance
against plans
— Cost control and rigorous budgeting
— Product lifecycle reviews
— Intellectual property protection (for example, through patents)
— We include inflation clauses in our contracts to manage cost increases
— We work closely with our suppliers, driving tighter management of lead times
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Executive Team monitoring of execution — Board
— Executive Team
— Investmentcommittee
— Our role in society
— Our business model drivers
WHAT HAS CHANGED IN 2024?
Overall, this risk remained stable in 2024, with the effectiveness of our controls in place to manage this risk improved in 2024, reflected in
our financial performance (see pages 19 to 24), with a new operating model being implemented to deliver our strategy.
Business interruption
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
A major disruption of our operations and ability to deliver
our products, services and programmes could have an
adverse impact on our people, internal facilities or
external supply chain which could result in failure to meet
agreed customer commitments and damage our prospects
of winning future orders.
Disruption could be caused by a range of events,
including extreme weather or natural hazards, (for
example, earthquakes or floods), which could increase in
severity or frequency given the impact of climate change;
political events; financial insolvency of a critical supplier;
scarcity of materials; loss of data; fire; pandemic or other
infectious disease.
—
Investment in capacity, equipment and facilities and in researching alternative
materials
— Duplication of capabilities across multiple locations
— We hold surplus stock to offset future shortages
—
We plan and practice IT disaster recovery, business continuity and crisis
management exercises
— Supplier due diligence
— Dual sourcing of critical suppliers
— Identification of alternate suppliers
— Relevant and appropriate insurance in place
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Investment reviews
— Supplier strategy and sourcing reviews
— Group security and resilience team
— Audit Committee
— Executive audit committee
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
No overall change in risk status as it remains high due to the potential for external events, including the impacts of other principal risk drivers
materialising, such as cyber, political, or extreme weather events, which could disrupt our supply chain and the ability to deliver our business
model and hinder our future performance. We are continuously working in partnership with our suppliers and investing in advanced digital
tools to enhance supply chain visibility and resilience.
Read more about how we are managing uncertainty in our supply chain on page 13.
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PRINCIPAL RISKS
PRINCIPAL RISKS – DRIVERS
Change in risk level:
Increased
Static
Decreased
Energy transition
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Failure to reach net zero by 2050, leveraging technology
to transition from carbon intensive products and services
at pace could impact our ability to win future business;
achieve operating results; attract and retain talent; secure
access to funding; realise future growth opportunities; or
force government intervention to limit emissions.
— Investment in: i) reducing carbon impact of existing products; and ii) zero carbon
technologies to replace our existing products
— Climate scenario modelling and physical risk impact assessments
— We balance our portfolio of products, customers and revenue streams to reduce
our dependence on any one product, customer or carbon emitting fuel source
— Communication of the actions we are taking to manage this risk, to demonstrate
our alignment to societal expectations and global climate goals
— Horizon scanning and emerging risk identification processes
— Inclusion of sustainability criteria in our investment committee decision making
process
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Strategy reviews
— Technology reviews
— Investment reviews
— Group sustainability team
— Climate steering committee
— Audit Committee
— Board
— Safety, Energy Transition & Tech
Committee
— Energy transition & technology
committee
— Our role in society
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
The need for lower carbon solutions has been identified as a long-term megatrend (see page 13), and the first phase of our sustainability
strategy review took place in 2024, focusing on energy transition (see pages 34 and 35).
As a result, the previous climate change risk has been refocused on energy transition, with the impact of extreme weather events now only
captured by the business interruption risk.
Information & data (including cyber)
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Failure to protect the integrity, confidentiality and
availability of data, both physical and digital, from attempts
to cause us and our customers harm, such as through a
cyber-attack. Potential impacts include hindering data
driven decision making, disrupting internal business
operations andservices for customers, or a data breach,
all of which could damage our reputation, reduce resilience,
and cause financial loss.
Causes include ransomware threats, unauthorised access
to property or systems for the extraction, corruption,
destruction of data, or availability of access to critical data
and intellectual property.
—
Deployment of multiple layers of controls, such as web and email gateways,
intrusion detection, behavioural analytics and data loss prevention
— Extensive testing of software and systems
—
Application of our crisis management framework to govern our response to
potential cyber security incidents and significant IT disruption
— Restricted access to our systems and locations
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Group cyber security team
— Group security and resilience team
— Audit Committee
— Safety, Energy Transition & Tech
Committee
— Executive audit committee
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
This risk has reduced in 2024 due to the progress of our mitigation programmes putting in place additional effective controls. However, the
risk remains high due to external factors including the ongoing speed of evolution of cyber security threats and increasing compliance
requirements.
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PRINCIPAL RISKS
PRINCIPAL RISKS – DRIVERS CONTINUED
Change in risk level:
Increased
Static
Decreased
Market & financial shock
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
The Group is exposed to market and financial risks, some
of which are of a macro-economic nature, (for example,
economic growth rates, foreign currency, oil price,
interest rates) and some of which are more specific to us
such as cyclical aviation industry, reduction in air travel
or defence spending, disruption to other customer
operations, liquidity and credit risks. This could affect
demand for our products and services.
Significant extraneous market events could also materially
damage our competitiveness and/or creditworthiness and
our ability to access funding. This would affect operational
results or the outcomes of financial transactions.
— Diverse and balanced portfolio
—
Monitoring of trends, market demand and future market forecasts, adjusting
business plans accordingly
— Investment committee to ensure capital investments are in line with our strategy
— Group liquidity policy
— Credit risk policy
—
Policies designed to hedge residual risks using financial derivatives (covering
foreign exchange, interest rates and commodity price risk)
— Balanced portfolio with the sale of original equipment and aftermarket services,
providing a broad product range and addressing diverse markets that have
differing business cycles
— We raise finance through debt and equity programmes
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
—
Five-year and strategic planning processes
— Strategy reviews
— Audit Committee
— Board
— Financial and operating drivers review
— Our business model drivers
WHAT HAS CHANGED IN 2024?
Financial shock risks have reduced in 2024, due to an enhanced approach to capital investments through the investment committee; strong
balance sheet liquidity and low leverage; the restoration of investment grade ratings; and hedging of near-team FX.
Market risk remains unchanged, with uncertainty around external market volatility and significant shocks (such as global conflict or the repeat
of a pandemic) offset by our ability to withstand these events increasing through our greater business resilience.
Political
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Geopolitical factors, such as changes in key political
relationships, explicit trade protectionism, differing tax or
regulatory regimes, potential for conflict or broader
political issues and heightened political tensions, could
lead to an unfavourable business climate and significant
tensions between major trading parties or blocs, which
could impact our strategy, execution, resilience, safety
and compliance.
—
Development of Group and country strategies and consider associated
dependencies
— Horizon scanning process for political implications and dependencies
—
Diversification considerations built into our investment and procurement choices
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Strategy reviews
— Technology reviews
— Supplier sourcing teams
— Government relations teams
— Country councils
— Board
— Executive Team
— Our role in society
— Our business model drivers
WHAT HAS CHANGED IN 2024?
No change in the overall level of risk due to external factors such as the ongoing conflict in the Middle East and Ukraine, as well as the
potential for increased geopolitical tensions, such as intensifying US-China competition and rising protectionism posing challenges, as outlined
on page 13. This is a fast-moving risk we continually monitor and respond to.
However, our control effectiveness improved in 2024, with the development of country specific strategies, the implementation of a new
operating model and the introduction of processes. For example, monitoring market exposures and adapting supply chain strategies to ensure
resilience amid potential protectionist measures and evolving trade dynamics.
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PRINCIPAL RISKS
PRINCIPAL RISKS – DRIVERS CONTINUED
Change in risk level:
Increased
Static
Decreased
Talent & capability
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Inability to identify, attract and grow the critical talent,
skills and capabilities required to deliver our strategic
priorities could threaten our ability to be a high-
performing, competitive, resilient and growing business.
— Talent enterprise system to attract and nurture the best and diverse talent and
ensure robust bench strength
—
Differentiated performance management framework to enable high performance
and growth
—
People rewarded fairly, based on skill and contribution and reward for high
performance and delivery
— Critical skills and capabilities defined and mapped at Group level
— Strategic workforce planning through our enterprise capability committee
—
Continuous learning with digital resources aligned to our identified critical
capabilities and skills
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— People leadership team
— Leaders across Rolls-Royce
— Employee opinion survey
— Nominations, Culture & Governance
Committee
— People committee
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
This risk has remained stable due to the action plans put in place to mitigate this risk while we transform the business. These programme
activities continue. People related metrics, including on retention and learning and development, plus more information on people
programmes like change makers, can be found on pages 46 to 50.
Technology
PRINCIPAL RISK DESCRIPTION CONTROLS AND MITIGATING ACTIONS
Failure to ensure products and services are based on
competitive technology, leveraging substantial
engineering and scientific challenges, adopting digital
tools (such as AI) and new ways of working, could hinder
our ability to accelerate product design and deliver a
competitive offer that ensures superior performance;
enhances the customer experience; drives the transition
to lower carbon; improves productivity and reduces costs.
This will ultimately negatively impact our competitiveness
and market share.
— Technology roadmaps
— Investment in R&D opportunities
— Prioritisation of the research and technology portfolio
— Horizon scanning process for emerging technology threats and opportunities
— Uniform project management standards
ASSURANCE ACTIVITIES AND PROVIDERS OVERSIGHT FORUM(S) BUSINESS MODEL
— Strategy reviews
— Investment reviews
— Technology reviews
— Safety, Energy Transition & Tech
Committee
— Energy transition & technology
committee
— Our role in society
— Our business model drivers
— Our uniqueness
WHAT HAS CHANGED IN 2024?
The potential of digitalisation and AI to further transform how we operate has been identified as a long-term megatrend (see page 13) and we
have continued to expand and evaluate this risk in 2024 as we further developed technology and digital roadmaps which outline what we
need to achieve our strategic goals and ensure operational excellence. The level of risk has reduced due to these roadmaps and the
integration of our technology strategy in our investment decision making, and the comprehensive, cross-business view of research and
technology activities.
See page 13 for more on how we are embedding AI and digital tools throughout our business.
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Going concern statement
Overview
In accordance with the requirements of the 2018 UK Corporate
Governance Code, the Directors have assessed the prospects of the
Group, taking into account its current position, the Group’s principal
risks which are described on pages 52 to 60, and the Group’s
mid-term forecasts together with factors that could affect its future
development, performance and position, as set out in the Strategic
Report on pages 2 to 65.
The Financial Review on pages 19 to 24 sets out the financial
position of the Group, its cash flows, liquidity position and the Group’s
capital framework. The notes to the accounts include the objectives,
policies and procedures over financial risk management, including
financial instruments and hedging activities, exposure to credit risk,
liquidity risk, interest rate risk and commodity price risk.
In adopting the going concern basis for preparing the consolidated
and Company financial statements, the Directors have undertaken a
review of the Group’s cash flow forecasts and available liquidity, along
with consideration of possible risks and uncertainties over an 18-month
period from the balance sheet date to June 2026. The Directors have
determined that the period to June 2026 (‘the going concern period’)
is an appropriate timeframe over which to assess going concern as it
considers the Group’s short- to medium-term cash flow forecasts and
available liquidity.
Forecasts
Recognising the challenges of reliably estimating and forecasting the
impact of external factors on the Group, the Directors have considered
two forecasts in their assessment of going concern, along with a
likelihood assessment of these forecasts. The base case forecast reflects
the Directors current expectations of future trading. A downside
forecast has also been modelled which envisages severe but plausible
downside risks. Both forecasts have been modelled over the going
concern period.
Latest forecasts predict large engine flying hours will reach 115% of
2019 levels in 2025, which is reflected in the Group’s base case forecast.
Macro-economic assumptions have been modelled using externally
available data based on the most likely forecasts with general inflation
at around 2%-3%, wage inflation at an average of 3%-4%, interest rates
at around 2%-4% and GDP growth at around 2%-4%.
The downside forecast assumes Civil Aerospace large engine flying
hours remain at average fourth quarter 2024 levels throughout the
going concern period, reflecting slower GDP growth in this forecast
when compared with the base case. It also assumes a more pessimistic
view of general inflation at around 2%-3% higher than the base case
covering a broad range of costs, including energy, commodities and
jet fuel. Wage inflation in the downside forecast is 1%-2% higher than
the base case and interest rates are 1%-2% higher. These macro-economic
pressures have been modelled across the whole going concern period.
The downside forecast also considers lower demand as a result of slower
market growth, and potential output risks associated with increasing
volumes and possible ongoing supply chain challenges.
As announced on 27 February 2025, the Group is recommencing
dividends, with the full year 2024 dividend of approximately £504m
payable in June 2025, subject to shareholder approval, and interim and
final dividends payable annually in June and September thereafter. In
addition, the Group announced a £1bn share buyback which will be
completed over the course of 2025. The dividends and the £1bn share
buyback have been included in the going concern assessment in both
the base case and the downside forecast.
The future impact of climate change on the Group has been considered
through climate scenarios. The climate scenarios modelled do not have
a material impact on either the base case or downside forecast over
the going concern period. Further detail on these climate scenarios is
set out on page 39�
Liquidity and borrowings
During 2024, the Group cancelled a £1bn undrawn UKEF-supported
loan facility that was due to mature in 2027, and in May 2024 the Group
repaid a €550m bond at its maturity. A one-year extension option on
the £2.5bn undrawn revolving credit facility was exercised in October
2024, extending the revolving credit facility maturity to November
2027. A further one-year extension option remains, subject to bank
agreement at the time of exercise.
At 31 December 2024, the Group had liquidity of £8.1bn including cash
and cash equivalents of £5.6bn and undrawn facilities of £2.5bn. The
going concern period includes the maturity of a $1bn bond in October
2025 that the Group intends to repay from cash. Subsequent maturities
during the going concern period are a €750m bond in February 2026
and a £375m bond in June 2026. Given the Group’s cash and liquidity
position over the going concern period, the bond maturities in 2026
could be repaid from cash should the Group decide not to refinance.
Based on borrowing facilities available at the date of this report the
Group’s committed borrowing facilities at 31 December 2024 and
30 June 2026 are set out below. None of the facilities are subject to
any financial covenants or rating triggers which could accelerate
repayment�
£ million
31 December
2024
30 June
2026
Issued bond notes
1
3,511 1,801
Revolving credit facility (undrawn)
2
2,500 2,500
Total committed borrowing facilities 6,011 4,301
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 refinanced £2.5bn revolving credit facility matures in November 2027 with a one-year
extension option (currently undrawn)
Taking into account the maturity of these borrowing facilities, the Group
has committed facilities of at least £4.3bn available throughout the
period to 30 June 2026.
Conclusion
After reviewing the current liquidity position and the cash flows
modelled under both the base case and downside forecasts, the
Directors consider that the Group has sufficient liquidity to continue
in operational existence over the going concern period to 30 June
2026 and are therefore satisfied that it is appropriate to adopt the going
concern basis of accounting in preparing the financial statements.
Viability statement
Consistent with previous years, we have assessed viability over a
five-year period which is in line with the Group’s five-year forecasting
process. We continue to believe that this is the most appropriate time
period to consider as, inevitably, the degree of certainty reduces over
any longer period.
The viability assessment considers liquidity over a longer period than
the going concern assessment, with the downside forecast using the
same assumptions as the going concern assessment and in 2027 to
2029 assuming a slower recovery than in the base case.
We have created severe but plausible scenarios that estimate the
potential impact of our principal risks arising over the assessment period
(descriptions of our principal risks and the controls in place to mitigate
them can be found on pages 52 to 60). We selected those principal
risks that could have the most material impact to liquidity over the next
five years and confirmed these with relevant subject matter experts.
The risks chosen and scenarios used are as shown in the table on
page62.
61
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Going concern and viability statements
The cash flow impacts of these scenarios were overlaid on the five-year
forecast to assess how the Group’s liquidity would be affected.
The scenarios assume an appropriate, effective management response
to the specific event and also considered specific activities to improve
liquidity such as raising additional funds, reducing expenditure and
divesting parts of our business.
Reverse stress testing has also been performed to assess the severity
of scenarios that would have to occur to exceed liquidity headroom.
The assumptions used in these stress tests were not considered
plausible�
On the basis described above, our current liquidity is such that it is
unlikely we would exceed liquidity headroom. Therefore, the Board
confirms that it has a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due
over the next five years. In making this statement, the Directors have
made the following key assumptions:
1�
The Group is able to refinance maturing debt facilities and draw
down existing available facilities as required. Debt maturities over
the assessment period are as follows:
a� $1bn bond maturing in 2025
b� €750m bond maturing in 2026
c� £375m bond maturing in 2026
d.
£2.5bn revolving credit facility maturing in 2027 (currently
undrawn facility, assumed to be refinanced upon maturity)
e� $1bn bond maturing in 2027
f. £545m bond maturing in 2027
g� €550m bond maturing in 2028
h�
New bonds assumed to be issued as planned: £0.2bn in 2026,
£1.3bn in 2027 and £0.5bn in 2028
2�
The Group has access to global debt markets and expects to be able
to refinance these debt facilities on commercially acceptable terms;
3�
That implausible scenarios do not occur. Implausible scenarios
include either multiple risks impacting at the same time or where
management actions do not mitigate an individual risk to the degree
assumed; and
4�
That in the event of one or more risks occurring (which has a
particularly severe effect on the Group) all potential actions (such
as but not limited to restricting capital and other expenditure to
only committed and essential levels, reducing or eliminating
discretionary spend, reinstating pay deferrals, raising additional
funds through debt or equity raises, executing disposals,
undertaking further restructuring and pausing distributions) would
be taken on a timely basis.
The Group believes it has the early warning mechanisms to identify the
need for such actions and, as demonstrated by our decisive actions
during and following the pandemic, has the ability to implement them
on a timely basis if necessary.
PRINCIPAL RISK SCENARIO ASSUMPTIONS AND IMPACTS
Safety (product)
Civil Aerospace product safety event resulting in aircraft being grounded, lower engine flying hour (EFH) revenues,
commercial penalties and additional costs (for example, unplanned shop visits). The grounding time and number of shop
visits required to exceed headroom are considered remote.
Compliance
A compliance breach resulting in fines and loss of new business with governments and state-owned companies. The
probability of triggering the size of fine required to exceed headroom is considered remote.
Execution
A programme issue on a major programme of the same (proportionate) scale as Trent 1000. The extent to which engine
life would need to be impacted to breach headroom is considered remote.
Business
interruption
a) The loss of a key element of our supply chain resulting in an inability to fulfil Civil Aerospace large engine orders for
12 months (whatever is more demanding). Reverse stress testing would require the time over which orders could not
be fulfilled to be extended beyond what we consider plausible.
b) A test bed event that disrupts US Defence deliveries.
c) An event in our Power Systems business that results in no deliveries over a period of time.
d) A pandemic with similar impact to the COVID-19 pandemic with significant engine flying hour reduction in Civil
Aerospace that require multiple years to recover to pre-pandemic levels and also impact on sales volumes especially
in Civil Aerospace and the Power Generation businesses.
Energy
transition
(previously
climate change)
Transition risk from our 1.5°C TCFD scenario where we receive lower revenues from existing Civil Aerospace and Power
Systems products coupled with a business interruption at one of our facilities. The extent of time over which orders
cannot be fulfilled in order to breach headroom is considered not plausible.
Information &
data (cyber)
A cyber-attack resulting in loss and corruption of data and resulting in business disruption, loss of EFHs, compliance
concerns due to disclosure of data and potentially trigger debarment from government contracts. The time period over
which EFHs would need to be affected to breach headroom is not considered plausible.
Market &
financial
– market shock
Plausible downside scenario to model lower demand than our base case, with Civil EFHs held at Q4 2024 levels, as well
as modelling ‘worst case’ inflation, interest rate and GDP taken from Bloomberg data.
Political
Sanctions imposed between major trading blocs resulting in supply chain disruption and a loss of sales in impacted
markets. Reverse stress testing showed that sanctions would need to persist over a period of time beyond what is
considered plausible.
62
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOING CONCERN AND VIABILITY STATEMENTS
The likely
consequences of
anydecision in the
longterm
During the year, the Directors considered the Group’s strategic direction and were regularly updated on
progress with the divestment programme. This, in turn, creates long-term value for shareholders, recognising
that the longer-term success of our business depends on the effects of our business activities on wider society.
The Board also discussed the framework for shareholder returns (see page 20).
During 2024, Board discussions included a focus on the new organisational design and how we operate to
enable a simpler, more efficient and effective organisation.
Further information on the launch of our multi-year transformation programme and new organisational design
can be found on pages 11 and 12 in the Strategic report and page 75 in our Board focus.
The interests of the
Company’s employees
The Directors recognise that the success of our business depends on attracting, retaining and motivating
talented people. The Directors consider and assess the implications of decisions on our people, where relevant
and feasible. Our focus on our people continued during 2024 and we launched our new purpose and behaviours
during the second half of the year. Further information can be found on page 10 and in our People and culture
section on page 46.
Additionally, at the 2024 AGM, a new share plan, the Rolls-Royce Global Employee Share Purchase Plan (GESPP)
was approved, enabling the Group to gift all colleagues globally 150 Rolls-Royce shares (or cash equivalent
where share allotment was not permitted). Further information on the GESPP can be found on page 48.
The need to foster the
Company’s business
relationships with
suppliers, customers
and others
Delivering our strategy requires a strong, mutual and beneficial relationship with suppliers, customers,
governments and joint venture partners. The Directors receive updates on engagement across the Group at
Board meetings and the Board supports our Executive Team who work collaboratively with our suppliers and
partners to continue to improve operational performance. During 2024, various Board and Executive Team
members met with several of our key suppliers and customers. Further information can be found on page 64
of our Stakeholder engagement section.
The impact of the
Company’s operations
on the community
andthe environment
Recognising the role we play in the global energy transition, the Board approved our refreshed sustainability
strategy following an in-depth review by the Safety, Energy Transition & Tech Committee, see page 34 for
information on our progress in advancing the strategy and progress against our targets in 2024.
The Board receives information through reports from the Chief Executive and Group-level reviews on various
topics to help the Directors make decisions relating to net zero ambitions and proposals to divest or invest. In
November, members of the Board attended the Rolls-Royce Schools Prize for Science & Technology 2022-2024
held in Derby, UK. Further information on this event can be found on page 65 of our Stakeholder engagement
section.
The desirability of the
Company maintaining
a reputation for high
standards of business
conduct
The Board reviews and approves our ethics and compliance frameworks and the General Counsel provides
regular updates to the Board on compliance with regulation. This, in conjunction with the Board monitoring
compliance with governance standards, helps to ensure that Board-level decisions and the actions of our
subsidiaries promote high standards of business conduct. Our Code and Group policies, supplier code and
modern slavery statements ensure high standards are approved and can be found on www.rolls-royce.com
The need to act fairly
between members
ofthe Company
After weighing up all relevant factors, the Directors consider which course of action best enables delivery of
our strategy through the long term, taking into consideration the effect on the Group’s stakeholders.
All of our Directors are briefed on their duties under the Companies Act 2006 during their induction. Our section 172(1) statement (s172) below
sets out how the Directors have discharged their s172 duty. The Board recognises the responsibility to all our different but interrelated
stakeholder groups and wider society. We recognise that effective engagement with a broad range of our stakeholders is essential for the
long-term success of the business and we aim to create value for our stakeholders every day by maintaining levels of business conduct that are
aligned to our values and our purpose. This section should be read in conjunction with our stakeholder engagement section on pages 64 and
65 and our Board’s focus which contains information on the principal decisions made by the Board during 2024, on pages 75 and 76.
63
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
Section 172 statement
Consistent communication with stakeholders is a priority for the Board and Executive Team who maintain regular touchpoints with stakeholders
to remain updated on their views and interests. The points identified through this engagement influence both Board decision
making and long-term strategy.
STAKEHOLDER ENGAGEMENT
STAKEHOLDER ENGAGEMENT REFERENCE
People
The Directors recognise that the success of our business depends on attracting, retaining and
motivating talented people. The Directors consider and assess the implications of decisions on our
people, where relevant and feasible.
During 2024, our Employee Champions, Bev Goulet and Wendy Mars, continued to represent the
voice of our people in the boardroom. The activities of the Employee Champions during the year and
opportunities for further engagement in 2025 were discussed at the Nominations, Culture &
Governance Committee. The Employee Champions provide regular feedback to Board members on
topics of interest and/or concern. This provides a valuable link between our people and the Board.
The Employee Champions continue to meet regularly with the employee stakeholder engagement
committee, which provides support for their activities. In 2024, the Employee Champions had a schedule
of on-site and hybrid engagement activities which included sessions with the global inclusion network
chairs, inclusion champions and the people leadership team.
Our Meet the Board event in Derby, UK, in May enabled around 60 of our apprentices to talk to the
Board in an informal setting. Questions included what sustainability means to us as individuals and
being inclusive, being at our best, being Rolls-Royce. Our Meet the Board event in Indianapolis, US,
in September provided around 40 of our employees the opportunity to gain insights from our Board
members and share their experiences from Rolls-Royce. We are committed to holding other Meet the
Board events in 2025 as the Board understands the value of engaging with employees in more
informalsettings.
In the second half of the year, the Group’s new purpose and behaviours were launched.
Comprehensive briefing packs were prepared for the Directors ahead of their September site visit to
the Defence division in the US to support their discussions with colleagues.
In addition, as part of our wider listening strategy, the new employee engagement survey, launched
in September 2024, captured quantitative data and the results were shared with the Board. This allowed
the Board to assess the impact of the new purpose and behaviours more effectively, ensuring
alignment with our strategic goals.
Many of our people are also our shareholders and we encourage their participation in a variety of
share plans. At the 2024 AGM, a new share plan, the Rolls-Royce Global Employee Share Purchase
Plan (GESPP), was approved which enabled the Group to gift all colleagues globally 150 Rolls-Royce
shares or cash equivalent where share allotment is not permitted. Your Shares: Gifted was a thank you
for their hard work and for the difference our colleagues make both today and for the future and it is
one of the ways the Group is investing in our people. In addition, under the GESPP, we are launching
Your Shares: Matched in 2025 where colleagues can purchase shares and the Company will match the
shares up to a certain amount.
See page 46
People and
culture
See page 80
Nominations,
Culture &
Governance
Committee
report
See page 86
Remuneration
Committee
report
Customers
The Board recognises that the quality of the Group’s customer relationships is based on mutual trust
as well as our engineering expertise. We recognise that we must retain and strengthen our focus on
the transition to a net zero carbon global economy by creating the sustainable power that our
customers require. We continue to focus on helping our customers deliver their own sustainability
agendas. During 2024, the Chief Executive and members of the Executive Team engaged with
customers at Farnborough, UK, with discussions focused on the potential of UltraFan as a scalable
technology. In addition, engagement took place on proposed investment to increase time on wing for
our customers�
At every meeting, the Board receives operational updates, including customer metrics and feedback,
across all the divisions. This greatly influences the Board’s deliberations and its support for the Executive
Team when considering our strategy. The Chair and Chief Executive will continue to meet with key
customers during 2025.
See page 25
Our divisions
Suppliers and
partners
The interests of both our suppliers and partners are regularly considered as part of the Board’s
discussions on manufacturing strategy and when reviewing specific projects. The Board supports our
Executive Team, who work collaboratively with our suppliers and partners, to continue to improve
operational performance through various means. The Board continued to receive updates from the
businesses on supplier performance and supply chain disruption. During 2024, discussions took place
on how we are helping our suppliers with the ongoing challenges experienced across the aerospace
supply chain�
See page 6
Chief
Executive’s
review
64
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Stakeholder engagement
STAKEHOLDER ENGAGEMENT CONTINUED
STAKEHOLDER ENGAGEMENT REFERENCE
Communities
The Board recognises the importance of our communities and understands that everything we do can
have an impact on our local and global communities. The Group’s charitable contributions and
sponsorships committee continued to identify causes for donation and partnership. During 2024, our
focus was supporting young people, particularly those disadvantaged in our communities, to overcome
barriers to participation, especially through STEM learning opportunities.
In November, Paulo Cesar Silva, Helen McCabe and members of the Executive Team attended the
Rolls-Royce Schools Prize for Science & Technology 2022-2024 which was held in Derby, UK with
approximately 150 attendees (see page 49). Our Group Director of Engineering, Technology & Safety
acknowledged the valuable contribution that school teachers provide to inspire the future generations
to participate in STEM learning. As part of the event, five finalist school teaching teams were hosted
in Derby, UK, for the day with visits to the Rolls-Royce Heritage Centre and apprentice workshop.
See page 46
People and
culture
Governing
bodies and
regulators
The Board recognises the importance of governments and regulators as stakeholders. Not only are
governments across the world customers but they also support the Group’s investment in infrastructure
and technology. During 2024, the Chair and Chief Executive held meetings with UK Government
ministers and senior officials on topics including the Atlantic Declaration, AUKUS and the SMR
programme. Following the division of the UK BEIS Department, the Board engaged with and briefed
the new post-holders on the Group’s strategy and performance. The Board is updated on engagement
with tax authorities and the related regulatory landscape. The General Counsel provides regular
updates to the Board on compliance with regulation.
In 2024, the Chair and members of the Executive Team met with UK Government ministers and senior
officials on topics including investment, defence and energy security. As 2024 was a general election
year in the UK, meetings extended to members of the Shadow Cabinet, including the then Leader of
the Opposition and Shadow Chancellor, at our Civil Aerospace campus in Derby, UK. Following the
election, our Chief Executive met the Prime Minister at the Farnborough Airshow, UK, and
Rolls-Royce business leaders have met and engaged with other members of the UK cabinet and
ministers, including the Chancellor, Business and Trade Secretary and Defence Secretary. In addition,
during the year, our Chair was appointed as a member of the industrial strategy advisory council
established by the UK Government in December.
See page 25
Our divisions
Investors
The investor relations team is the key interface between the investment community and the Board,
providing frequent dialogue and feedback. The Chair and members of the Board make themselves
available to meet with institutional investors and seek to understand and prioritise the issues that
matter most. In addition, the Chief Executive and Chief Financial Officer, supported by members of
the Executive Team and the investor relations team, interact regularly with investors, most notably
after our financial results, capital markets events, site visits and at conferences.
We set ambitious targets for the mid-term at our Capital Markets Day in November 2023 (see page 21).
Our engagement with investors has continued throughout the year, including meeting with
investors on post-results roadshows in London, UK and Boston, New York, Miami, San Francisco and
Los Angeles, US. Key investor conferences during the year included the Bank of America Global
Industrials Conference (UK), BNP Paribas Exane CEO Conference (Paris) and JPMorgan European
Capital Goods Conference (UK).
During 2024, the Chairs of each Committee and the governance team engaged with shareholders and
proxy advisers on proposals ahead of the 2024 AGM.
See page 11
Strategy
See page 86
Remuneration
Committee
report
Strategic Report signed
on behalf of the Board
Tufan Erginbilgic
Chief Executive
27 February 2025
65
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
STRATEGIC REPORT
STAKEHOLDER ENGAGEMENT
GOVERNANCE
REPORT
Chair’s introduction ��������������������������������������������������������������������������������������67
Board of Directors ���������������������������������������������������������������������������������������� 68
Compliance with the Code �������������������������������������������������������������������������70
Corporate governance ���������������������������������������������������������������������������������71
Executive Team �����������������������������������������������������������������������������������������������78
Committee reports ��������������������������������������������������������������������������������������� 80
����Nominations, Culture & Governance ������������������������������������������������� 80
����Audit ��������������������������������������������������������������������������������������������������������������� 82
����Remuneration �������������������������������������������������������������������������������������������� 86
����....Remuneration policy ���������������������������������������������������������������������������90
����....2024 remuneration report ����������������������������������������������������������������101
����Safety, Energy Transition & Tech ���������������������������������������������������������� 111
Responsibility statements �������������������������������������������������������������������������� 112
66
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
As Chair of the Board, I am pleased to introduce our governance report
for 2024.
At Rolls-Royce, we believe that good governance is the foundation of
sustainable success. In 2024, we continued to build on our solid bases
of leadership, oversight and accountability. In a period of significant
change for the Group, the Board has remained committed to guiding
this transformation while upholding the highest standards of
governance.
Strengthened governance structures
Our 2023 Annual Report described the introduction of a new Board
committee, the Safety, Energy Transition and Tech (SETT) Committee.
The alignment of the committee structures of both the Board and the
Executive Team is working well and has enabled appropriate focus,
oversight and delivery of our transformation programme. For example,
during 2024, the SETT Committee looked in depth at our revised
sustainability strategy before it was considered and approved by the
Board. Their insights contributed to better discussions and output. A
full report of the SETT Committee’s activities during the year is set out
on page 111�
At the Nominations, Culture & Governance Committee, we are regularly
updated on the succession pipeline and associated development
initiatives for our senior leaders. In 2024, this included considering our
talent programmes (see People and culture, page 46). A full report of
the Nominations, Culture & Governance Committee can be found on
page 80�
To ensure compliance with the revised 2024 Code, we will ensure our
governance framework evolves not only to meet the regulatory
requirements but also to uphold the highest possible standards of
transparency and stewardship relevant to the Group.
Board effectiveness
We have undertaken a review of the performance of the Board and its
Committees in 2024 to enable us to continuously improve as a Board
(see page 77). Overall, the outcome of the review was positive with
encouraging feedback about the effectiveness of the Board and its
Committees. The areas of oversight which had improved during 2024
were recognised, such as risk management and recognition was given
to the new Safety, Energy Transition & Tech Committee which worked
well. A number of areas for continuing focus in 2025 were also
identified for the Board and its Committees which you can read about
on page 77 and in the individual Committee reports.
Engaging with our stakeholders
We take every opportunity to engage with our stakeholders where
appropriate, recognising the importance of consistent communication
to remain updated on their views and interests. Our engagement has
influenced the Board over the course of the year in our discussions
and decision-making. I have highlighted below how we have interacted
with our people and our shareholders during 2024. Our full stakeholder
engagement report on pages 64 and 65 provides more detail.
Our people
My Board colleagues and I value the opportunity to meet and hear
from our people across the Group and two particularly important
initiatives support the Board in ensuring they hear the employee voice:
—
Firstly, the Meet the Board events which, in 2024, were held in Derby,
UK in May and in Indianapolis, US in September. These events allow
our people across the business to engage directly with my fellow
Board Directors, encouraging open dialogue on issues that matter
to them.
— Secondly, our Employee Champions, Bev Goulet and Wendy Mars,
play a critical role in reaching out to our colleagues. Through site
visits and engagement forums, they gather feedback and ensure that
any concerns are raised in the boardroom.
Alongside these opportunities, members of the Board also engaged
with our people at site visits to Reston, Washington, US and to
Friedrichshafen, Germany during 2024.
In 2024, we introduced our new purpose and behaviours. My Board
colleagues and I look forward to engaging with our people during 2025,
supporting them in their understanding of how their actions bring our
values to life and support the Group with the delivery of our strategy.
For more information on Our purpose, see page 10.
Our shareholders
During the year, I met with several of our major institutional investors
to understand their views of Rolls-Royce and in May we held our AGM.
Our 2024 AGM was fully hybrid, allowing shareholders to participate
virtually or in person. This approach reflects our commitment to
leverage technology to strengthen engagement and create
opportunities for shareholders to connect directly with the Board. We
will use this hybrid format again for our 2025 AGM to be held on 1 May
2025. I look forward to engaging with our shareholders in person and
virtually at this time. Details of the AGM will be available to our
shareholders in mid-March 2025.
Looking forward
Our focus for 2025 will include succession planning and talent and
development, continuously strengthening our governance framework
and supporting a culture that empowers our people to excel.
I would like to thank my fellow Directors for their unwavering
commitment and invaluable counsel. I am confident that the
combination of experienced leadership, diverse thinking and
transparent governance makes us well positioned to navigate the
opportunities and challenges ahead.
Dame Anita Frew
Chair
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
Chair’s introduction
Position
Board skills and competencies
Key external appointments
DAME ANITA FREW
Chair of the Board
Chair, Nominations, Culture
& Governance Committee
Dame Anita brings a wealth of extensive leadership and global
experience from more than two decades of board
appointments, both in the UK and internationally. Together,
with her skills and reputation with investors and government
institutions, her broad knowledge of strategic management
across a range of sectors is invaluable to the Board and the
Group as a whole.
Current
— Industrial strategy advisory
council (UK Government), member
Past
— Croda International plc, chair
Appointed to the Board
on 1July 2021 and as Chair
on 1October 2021
TUFAN ERGINBILGIC
Chief Executive
Tufan is a proven leader of winning teams within complex
multinational organisations, with over six years as CEO of BP’s
downstream business. He drives a high-performance culture
and delivers results for investors. He has extensive strategic
and operational experience and a firm understanding of
safety critical industries as well as the challenges and
commercial opportunities presented by the drive for low
carbon technologies. He has a strong track record for
execution, delivery and the creation of significant value and
an ambition to deliver the full potential of Rolls-Royce’s
market positions.
Current
— Iveco Group NC, NED
— UK PM’s 2024 Business Council
Past
— Global Infrastructure Partners,
partner & senior adviser
— BP p.l.c., various executive roles
— DCC plc, NED
— Turkiye Petrol Rafinerileri A.S, NED
— GKN plc, NED
Appointed to the Board
on 1January 2023
HELEN MCCABE
Chief Financial Officer
Helen has a track record of promoting rigorous financial
discipline and her experience of delivering effective
performance management within complex multi-national
engineering organisations will be invaluable as the Group
moves, at pace, to transform Rolls-Royce. Her skillset
complements the existing capabilities of the Executive
Team, contributing to Rolls-Royce delivering on its
significant potential.
Past
— BP p.l.c., various leadership roles
Appointed to the Board
on 4August 2023
BIRGIT BEHRENDT
Independent
Non-Executive Director
Birgit brings deep experience across global procurement
and supply chain management to the Board. Alongside this,
she has significant insight into the development and
management of international joint ventures (JV), having led
Ford’s key European JV’s. She also has a strong track record
and an ongoing interest in developing, mentoring and
coaching key talent and encouraging women in particular to
consider a career in STEM. She has worked in the US and
Germany and brings deep experience of working with unions
and works councils.
Current
— Umicore SA, NED
— Thyssenkrupp AG, NED
— KION Group AG, NED
Past
— Ford, various executive roles
— Ford-Werke GmbH, NED
Appointed to the Board
on 11 May 2023
STUART BRADIE
Independent
Non-Executive Director
Stuart brings to the Board a reputation for building strong
relationships and successfully driving comprehensive
organisational transformation. Over the past nine years,
Stuart has guided KBR’s evolution, prioritising a focus on
people alongside strong commercial discipline. KBR delivers
disruptive technologies and digital solutions that address
areas of global importance. Stuart has used a safety and ESG
focus to deliver cultural change and helped make KBR the
number one in its peer group in delivering against its
ESG agenda.
Current
— KBR, President & Chief Executive
Appointed to the Board
on 11May 2023
PAULO CESAR SILVA
Independent
Non-Executive Director
Paulo brings deep expertise in the aerospace industry, a
broad international mindset and an appetite for growth,
change and innovation. Alongside this, he brings a wealth of
strategic, commercial and operational experience to the
Board’s discussions. He also brings considerable finance
experience having spent his early career in senior finance
roles�
Current
— Electra.Aero, adviser
Past
— Embraer S.A., president & CEO
— Cemig, NED
Appointed to the Board
on 1 September 2023
GEORGE CULMER
Senior Independent
Director
George has a strong track record as a senior finance
professional with significant experience gained in large,
international, highly regulated groups with high cyber threat
profiles and has proven business leadership credentials. With
this experience, together with his strengths in change
leadership and transformation gained from within complex
groups, George makes a significant contribution to the Board.
Current
— Aviva plc, chair
Past
— Lloyds Banking Group plc, CFO
— RSA Insurance Group plc, group
financial officer
Appointed to the Board
on 2January 2020
68
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Board of Directors
Position
Board skills and competencies
Key external appointments
LORD JITESH GADHIA
Independent
Non-Executive Director
Chair, Remuneration
Committee
Lord Jitesh brings a wealth of complex advisory and
transactional experience to the Board, having spent nearly
25 years in the banking and private equity sector. He has
extensive remuneration experience, earned from both listed
companies and UK Government Investments and UK Financial
Investments, where he played a key role in compensation
discussions about the Government’s investments in some of
the UK’s biggest companies. This, together with his broad
industry experience, is an asset to the Board and the
Remuneration Committee.
Current
— Taylor Wimpey plc, SID
— Compare the Market Limited, NED
— Intas Pharmaceuticals, NED
— Court of Directors of the Bank of
England, NED
Past
— UK Government Investments, NED
— Blackstone Group, senior MD
Appointed to the Board
on 1 April 2022
BEVERLY GOULET
Independent
Non-Executive Director
Rolls-Royce North America
Holdings, Inc.,
boardmember.
Lead Employee Champion
Having spent a considerable amount of her career in the
airline industry, Bev brings valuable knowledge and
operational experience to the Board. She has significant
expertise in finance, treasury, strategy, legal and governance
matters. She has the expertise and experience to be able to
confidently contribute to decision-making and actively take
part in developing and strengthening our businesses.
Current
— Xenia Hotels & Resorts, Inc., NED
— Answer ALS Foundation,
foundation board chair
Past
— American Airlines, Inc., various
executive roles
— American Airlines Federal Credit
Union, chair
—
Atlas Air Worldwide Holdings, Inc.,
NED
Appointed to the Board
on 3 July 2017
NICK LUFF
Independent
Non-Executive Director
Chair, Audit Committee
Nick is an experienced finance executive having been chief
financial officer of a number of listed companies across a
variety of industries. He has broad financial skills and a track
record of driving business performance. His extensive
non-executive and audit committee experience, together
with both financial and accounting expertise and a passion
for engineering, is crucial in his role as Chair of the Audit
Committee and is invaluable to the Board.
Current
— RELX plc, CFO
Past
— Centrica plc, CFO
— Lloyds Banking Group plc, NED
— QinetiQ Group plc, NED
Appointed to the Board
on 3May 2018
WENDY MARS
Independent
Non-Executive Director
Chair, Safety, Energy
Transition & Tech
Committee.
Employee Champion
As a leader, Wendy has overseen diverse teams across sales,
engineering and innovation in 123 countries. She brings
experience and insight across hardware, software and services
with a deep understanding of technological transformation
of complex global organisations. Wendy’s knowledge of both
the technical steps needed to foster innovation in a
technology company as well as the challenging realities of
its implementation in organisations at different stages of their
transformation journey is invaluable to the Board and the
Group as a whole. Technology can play a significant role in
helping businesses to achieve their sustainability objectives;
Wendy brings this experience to the Board.
Past
— Cisco Systems, Inc., president
Europe, Middle East and Africa
region (EMEA)
— ThruPoint, Inc., various executive
roles
Appointed to the Board
on 8 December 2021
DAME ANGELA STRANK
Independent
Non-Executive Director
Dame Angela brings a wealth of corporate experience to the
Board and a proven track record in managing engineering
operations and driving technology, science and engineering
research programmes. Having actively worked in climate
research and pioneering women in STEM careers,
sustainability and corporate ethics are key areas of interest.
As a member of the Safety, Energy Transition & Tech
Committee, Dame Angela brings invaluable expertise to the
Group’s development of its safety and sustainability strategy,
drawing on her experience from serving on the sustainability
committee of two other listed companies.
Current
— Mondi plc, NED
— SSE plc, NED
— Rio Tinto innovation advisory
committee
Past
— Severn Trent plc, NED
— BP p.l.c., various executive roles
Appointed to the Board
on 1May 2020
69
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
BOARD OF DIRECTORS
COMPLIANCE WITH THE 2018 UK CORPORATE GOVERNANCE CODE
The Company is subject to the principles and provisions of the 2018 UK Corporate Governance Code (the Code), a copy of which is
available at www.frc.org.uk. For the year ended 31 December 2024, the Board considers that it has applied the principles and complied in full
with the provisions of the Code.
During 2024, we carried out a review of the 2024 UK Corporate Governance Code (the 2024 Code) ahead of our reporting for the year ended
31 December 2025�
Board leadership
andcompany
purpose
— Our Governance Report provides examples of our leadership and our Strategic Report
sets out how we have engaged with our key stakeholders
—
Throughout the year, the Board has provided oversight of the ongoing Group-wide
transformation programme which included the launch of the new purpose and behaviours
for the Group
See page 64
Stakeholder
engagement
See page 10
Our purpose
Division of
responsibilities
—
We clearly define the roles of the Chair and the Chief Executive and fully support the
separation of the two roles
— The Board believes it operates effectively with the appropriate balance of independent
Non-Executive Directors and Executive Directors
— The Board regularly considers the time commitments of our Non-Executive Directors
— Prior Board approval is required for any Director’s external appointments to ensure there
is no conflict or compromise on their time
— The quality of information and resources available to the Board has enabled us to operate
effectively and efficiently throughout the year
See page 68
Board of
Directors
See page 80
Nominations,
Culture &
Governance
Committee
report
Composition,
succession
andevaluation
— Our Board comprises a combination of broad skills, experience and knowledge
—
We have a clear process when considering appointments to the Board and maintain
effective succession planning
—
For 2024, we carried out an internal evaluation of the Board and it’s Committees,
supported by Independent Audit Ltd. The methodology and outcomes can be found on
page 77
See page 68
Board of
Directors
See page 73
Board
composition
Audit, risk and
internal control
—
We recognise the importance and benefits of ensuring the internal audit function and the
external auditors remain independent
—
The Board presents a fair, balanced and understandable assessment of the Group’s
position and its prospects
—
Our risk and control environment is reviewed by the Audit Committee. The Board
considered both emerging and principal risks during the year
—
The Audit Committee also considers the information & data principal risk, including
cyber risk
See page 82
Audit
Committee
report
Remuneration
— The Remuneration Committee, comprising only Non-Executive Directors, is responsible
for developing the policy and determining executive and senior management
remuneration
— No Director is involved in deciding their own remuneration outcome
— The Remuneration Committee engaged with investors on the remuneration policy which
was approved by shareholders at the 2024 AGM
— In 2024, the Remuneration Committee carried out a review of performance of WTW as
the independent adviser to the Committee
— An updated remuneration policy is being proposed to shareholders for approval at the
2025 AGM. We are not proposing any material changes to the current policy but are
seeking shareholder support for two minor amendments following the publication of the
updated Investment Association principles of remuneration. Further detail on these
amendments can be found in the Remuneration report on page 86
See page 86
Remuneration
Committee
report
70
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Compliance with the Code
Roles and responsibilities
The roles of the Chair and Chief Executive are clearly defined and the
Board supports the separation of the two roles. The Chair is
responsible for the leadership and effectiveness of the Board. The Chief
Executive is responsible for the running of the Group’s business and
leads the Executive Team which comes together to review, agree and
communicate issues and actions of Group-wide significance.
Non-Executive Directors support the Chair and provide objective and
constructive challenge to management. The Senior Independent
Director (SID) provides a sounding board for the Chair and serves as
an intermediary for the Chief Executive, other Directors and
shareholders when required.
The Chief Governance Officer ensures that appropriate and timely
information is provided to the Board and its committees and is
responsible for advising and supporting the Chair and the Board on
all governance matters. All Directors have access to the Chief
Governance Officer and may take independent professional advice at
the Group’s expense in conducting their duties.
Directors’ independence
We continue to monitor and note potential conflicts of interest that
each Director may have and recommend to the Board whether these
should be authorised and if any conditions should be attached to such
authorisations. The Directors are regularly reminded of their
continuing obligations in relation to conflicts and are required to review
and confirm their external interests at least annually. This helps us to
consider whether each of them continues to be independent.
Following due consideration, the Board determined that all
Non-Executive Directors continued to be independent in both
character and judgement. Furthermore, it was determined that the
Chair was independent on her appointment.
Board
Chair
Chief Executive
Safety, Energy Transition
& Tech Committee
Remuneration Committee
Audit Committee
Nominations, Culture &
Governance Committee
Executive Team
THE ROLE OF THE BOARD
The Board is ultimately responsible to shareholders for the direction,
management, performance and long-term sustainable success of the
Group. It sets the Group’s strategy and objectives and oversees and
monitors internal controls, risk management, principal risks, governance
and viability of the Group. In doing so, the Directors comply with their
duties under s172 of the Companies Act 2006.
The Board has established certain principal committees to assist it in
fulfilling its oversight responsibilities, providing dedicated focus on
particular areas (see page 72). The chair of each committee reports to
the Board on the Committee’s activities after each meeting.
In addition to the Board’s principal committees, it has established a
sub-committee of Directors who each hold an appropriate level of UK
national security clearance for the purpose of receiving and
considering, on behalf of the Board, any UK classified information
relating to the Group’s programmes and activities.
Bev Goulet, a US national and independent Non-Executive Director,
also sits on the board of Rolls-Royce North America Holdings, Inc. to
create a link between the Board and the Group’s North American
governance structure.
Key matters reserved for the Board
— The Group’s long-term objectives, strategy andriskappetite
— The Group’s organisation andcapability
— Stakeholder engagement
—
Overall corporate governance arrangements, including Board
andCommittee composition, committee terms of reference, Directors’
independence andconflictsofinterest
— Internal controls, governance and risk management frameworks
— Changes to the corporate orcapital structure oftheCompany
— Annual Report and financial and regulatory announcements
— Significant changes in accounting policies or practices
—
Annual plan and financial expenditure and commitments above
levels set by the Board
— Overview of the speak up programme and cases reported through
the speak up line
See page 78 for information
about the Executive Team
71
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
Corporate governance
THE ROLE OF EACH COMMITTEE
Nominations, Culture & Governance
Lead the process for appointments to the Rolls-Royce Board; ensure
plans are in place for orderly succession to Board and senior executive
positions
Oversee the development of a diverse pipeline for succession
Ensure the composition of the Board is appropriate and relevant so
that the Board is in the best position to oversee operational performance
and drive the Group’s strategy
Assess and monitor culture to ensure alignment with the Group’s
policies, practices and behaviours
Oversee the Group’s global diversity and inclusion strategy and
its implementation
Keep the Board’s corporate governance arrangements under review.
Ensure these are consistent with best corporate governance standards
Principal risks: compliance; talent & capability
Audit
Assist the Board in monitoring the integrity of the Company’s
financial statements and any formal announcements relating to
financial performance
Oversight of climate change reporting
Review the internal financial controls and the risk management and
internal control systems and review any concerns of financial fraud
Recommend to the Board the financial reporting, focusing on
accounting policies, judgements and estimates; disclosures; compliance
with regulations; and that the Annual Report is fair, balanced
and understandable
Monitor and review the effectiveness of the internal audit function and
oversee the Company’s relations with the external auditor and approve
their terms of engagement and fees
Principal risks: compliance, business interruption; energy transition;
information & data including cyber; market & financial shock
See page 80 for the Nominations, Culture & Governance Committee report See page 82 for the Audit Committee report
Remuneration
Determine a policy for executive director remuneration capable of
attracting and retaining individuals necessary for business success
Set remuneration for the Chair of the Board, Executive Directors and
senior executives
Determine the design, conditions and coverage of incentives for senior
executives and approve total and individual payments under the plans
Determine targets for any performance-related pay plans and the issue
and terms of all-employee share plans
Oversee any major changes in remuneration
Review workforce remuneration and related policy and the alignment
of incentives and rewards with culture, taking these into account when
setting the policy for executive director remuneration
Safety, Energy Transition & Tech
Provide oversight in respect of:
—
people safety (occupational health and safety, process safety,
maintenance of facilities, asset integrity and personnel security)
— product safety
— environment and energy transition, including progress and delivery
against agreed metrics, targets and objectives
Monitor the operation of the Group’s product safety governance
frameworks, scrutinising the development and implementation of
changes in process and practice
Review, challenge and support the Group’s energy transition strategy,
track progress and review the environmental impacts of products and
operations. Provide oversight and assurance of the Group’s scientific
and technological strategy, processes and investments
Principal risks: safety; energy transition; technology; information & data
including cyber
See page 86 for the Remuneration Committee report See page 111 for the Safety, Energy Transition & Tech Committee report
Nominations, Culture
&Governance
Audit Remuneration
Safety, Energy Transition
& Tech
Dame Anita Frew
Birgit Behrendt
Stuart Bradie
Paulo Cesar Silva
George Culmer
Lord Jitesh Gadhia
Beverly Goulet
Nick Luff
Wendy Mars
Dame Angela Strank
Female representation 50% 25% 50% 60%
Chair of the Committee Member of the Committee Not a member of the Committee
Committee membership
72
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CORPORATE GOVERNANCE
Balance of the Board Non-Executive Directors’ tenure Board members by gender
Non-Executive
Directors – 10
Executive
Directors – 2
0–3 years – 4
3–6 years – 4
6–9 years – 2
Male – 6
Female – 6
1 According to the Company’s Articles, at least
50% of our Directors must be British citizens
Board members by ethnicity Board members by nationality
1
White – 11
British-Asian – 1
British – 9
American – 1
European – 1
Brazilian – 1
Business experience Global experience
People and
product safety
Cyber & digital
Climate change &
sustainability
Engineering, science
& technology
Company leadership
Finance
Audit & risk
management
Remuneration
Transformation
Legal & regulation
Sector specific
Geopolitics
Europe
Americas
Asia & Middle East
Non-Executive Director
Dame Anita Frew
Birgit Behrendt
Stuart Bradie
Paulo Cesar Silva
George Culmer
Lord Jitesh Gadhia
Beverly Goulet
Nick Luff
Wendy Mars
Dame Angela Strank
COMPOSITION OF THE BOARD AT 27 FEBRUARY 2025
Non-Executive Directors’ skills andexperience at 27February 2025
73
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
CORPORATE GOVERNANCE
Site visits
To further support the work of the Board and its committees, we arrange
site visits to different areas of the business throughout the year so that
Board members are able to gain a deeper understanding of how the
different divisions operate and meet individuals from those divisions.
During such site visits, the Board aims to meet our people and key
personnel within the divisions, receive tours of facilities and attend
meetings which focus on specific areas of interest for each of
the businesses.
—
In May, following the 2024 AGM, we held a Meet the Board event
where Board members engaged with many of our apprentices at the
Learning and Development Centre in Derby, UK. The afternoon
consisted of breakout sessions where Board members could talk
about their experiences and career progression, while the apprentices
were given the opportunity to ask the Board members questions on
a variety of topics (see page 64 for more information)
— In June, the Safety, Energy Transition & Tech Committee visited the
Power Systems division in Friedrichshafen, Germany. The visit focused
on people and product safety on the first day and energy transition
and technology on the second day. Both days allowed scheduled
time for the Committee members to tour the site and meet with our
people�
—
In September, the Board visited the Defence division in the US. Board
meetings took place throughout the week and Board members met
with employees during a Meet the Board event at our facilities in
Indianapolis, US. Various site tours were held. In addition, the
Board engaged in a geopolitical roundtable with external advisers.
— In November, the Chair, SID and other members of the Board visited
Raynesway, UK, to learn more about our submarines business.
The table above sets out the Directors’ attendance at Board and
Committee meetings throughout 2024.
Board members’ attendance was once again high in 2024. However,
Directors are sometimes unable to participate in certain Board and
Committee meetings. In September, Birgit Behrendt was not able to
attend the Board meeting due to prior business commitments. In this
situation, the Directors provide feedback on the matters under
consideration to the Chair of the Board and the Committee chair, where
relevant.
Most scheduled meetings end with a private discussion of the
Non-Executive Directors led by the Chair of the Board or Committee,
without the Executive Directors or members of the Executive Team or
management present�
In support of the Board and committees’ work, where there is a
requirement for greater, in-depth discussion, we hold deep dives into
specific areas of focus outside the meeting schedule. In 2024, the Safety,
Energy Transition & Tech Committee held two deep dives relating to
our SMR and UltraFan technologies. All members of the Board are
invited to join these sessions.
Where legislation and regulation has changed that impacts the
directors’ duties, we provide in-depth training as part of our
Nominations, Culture & Governance Committee’s programme. In
December, our General Counsel provided an overview of the Economic
Crime (Transparency and Enforcement) Act and the failure to prevent
fraud offences.
Board and Committee
attendance in 2024
Board
8 meetings
Nominations,
Culture &
Governance
4 meetings
Audit
7 meetings
Remuneration
4 meetings
Safety, Energy
Transition & Tech
3 meetings
Dame Anita Frew 8/8 4/4 – – –
Tufan Erginbilgic 8/8 – – – –
Helen McCabe 8/8 – – – –
Birgit Behrendt 7/8 4/4 – – 3/3
Stuart Bradie 8/8 4/4 – – 3/3
Paulo Cesar Silva 8/8 4/4 – – 3/3
George Culmer 8/8 4/4 7/7 4/4 –
Lord Jitesh Gadhia 8/8 4/4 7/7 4/4 –
Beverly Goulet 8/8 4/4 7/7 4/4 –
Nick Luff 8/8 4/4 7/7 – –
Wendy Mars
1
8/8 4/4 – 2/2 3/3
Dame Angela Strank 8/8 4/4 – – 3/3
1 Joined the Remuneration Committee in May 2024
74
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CORPORATE GOVERNANCE
BOARD FOCUS THROUGHOUT 2024
IN-YEAR PRIORITIES
Transformation
Following the launch of a multi-year transformation programme in 2023, progress during 2024 was reviewed regularly by
the Board. The success of the transformation programme and progress of the strategic initiatives is evident in the Group’s
financial performance.
The new organisational design, aligned to the transformation programme, was implemented on 1 June 2024. The Board
continued to track progress against delivery of the target of £200m of annualised savings by the end of 2025. The focus now
is on how we operate, to enable a simpler, more efficient and effective organisation. Achieving our vision is underpinned by
our purpose and behaviours transformation workstream, reviewed by the Nominations, Culture & Governance Committee
in May and launched in September.
See page 10 for Our purpose
Strategy
The Board continued to track progress against the four strategic pillars: portfolio choices and partnerships; strategic
initiatives; efficiency and simplification; and lower carbon and digitally enabled businesses.
See page 11 for our Strategy
FINANCIAL
Group budget and five-year plan
The Chief Financial Officer presents a financial performance update at every Board meeting. At the December meeting, the
Board considered the five-year plan and 2025 budget.
See page 19 for the Financial review
Viability statement
The Board agreed the viability statement period to be reported in the Annual Report. The Audit Committee assessed the
Group’s viability, with scenarios created based on the principal risks and modelled by the divisions as part of the five-year
forecasts.
See page 61 for the Viability statement
Reports and regulatory reporting
On the recommendation of the Audit Committee, the Board approved the 2023 full-year results announcement, 2023 Annual
Report and Accounts, 2024 half-year results announcement and the trading updates issued during the year.
RISK MANAGEMENT
Review of effectiveness of risk management and internal controls
The Audit Committee and Board assessed the effectiveness of the risk management and internal controls framework in place
across the Group. The Board confirms that, where weaknesses in the Group’s internal control environment were identified,
plans for remediation were implemented and aligned to an appropriate timeframe.
See page 52 for Principal risks and page 82 for our Audit Committee report
Safety risk
In June, members of the Safety, Energy Transition & Tech (SETT) Committee visited our Power Systems division in Friedrichshafen,
Germany, for two safety-focused visits. As part of the visit, safety in relation to our people and products was considered.
At each SETT meeting, safety is reviewed and at every Board meeting our Chief Executive reports on the safety agenda.
See page 52 for Principal risks
Key stakeholders
People Customers Suppliers and partners Communities Governing bodies and regulators Investors
75
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
CORPORATE GOVERNANCE
BOARD FOCUS THROUGHOUT 2024 CONTINUED
RISK MANAGEMENT CONTINUED
Principal risk review
To discharge their responsibilities under the 2018 Code, throughout the year the Board and its Committees considered the
principal risks as part of its review of the risk management framework and the Board also discussed emerging risks. The Audit
Committee reported to the Board that a robust assessment of the principal risks had been undertaken.
See page 52 for Principal risks
SUSTAINABILITY AND ENVIRONMENTAL
TCFD and climate change
The Audit Committee and SETT Committee both considered our sustainability reporting, including the TCFD
recommendations and the Scope 3 emissions calculations. During the year, the Audit Committee also reviewed the controls
in relation to the data to gain greater oversight of the metrics used in relation to Scope 3 emissions.
See page 32 for Sustainability
Sustainability strategy
The SETT Committee considered the Group’s sustainability strategy including updates of the activities of the Executive-level
energy transition & technology committee. The Board approved the refreshed sustainability strategy in July.
See page 32 for Sustainability
CULTURE
People and culture
The Nominations, Culture & Governance (NCG) Committee received an update from the Chief People Officer on people and
culture, including progress against our People strategy. In July, the Committee carried out a review of the succession plan
for the Executive Team and the Group’s approach to developing successors. A focus was put on both internal succession
and external market mapping for key positions.
See page 46 for People and culture
Talent & capability
The NCG Committee reviewed the principal risk, talent and capability, and any impact of the new organisational design.
Recognising the importance to future-proof the skills and capabilities of the Group to enable the success of the strategic
plan, the NCG Committee reviewed the organisational capability and discussed the initiatives that had been identified to
drive continuous capability improvement. The NCG Committee continued to review progress against the strategic pillars of
our inclusion strategy. Performance against the 2025 diversity targets continued to be kept under review (see page 50).
See page 46 for People and culture
See page 52 for Principal risks
GOVERNANCE, LEGAL AND REGULATORY
Board effectiveness review
An internal review of the effectiveness of the Board and its Committees was supported by Independent Audit Ltd. In addition,
the Chair met with each of the Non-Executive Directors separately to discuss their individual performance and give feedback
on the Board and Committee evaluation.
See page 77 for our Board effectiveness review
Legal and regulatory update
The Board regularly receives a legal and regulatory update from the General Counsel. In December, the Board received
training in relation to the recent Economic Crime (Transparency and Enforcement) Act.
Key stakeholders
People Customers Suppliers and partners Communities Governing bodies and regulators Investors
76
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CORPORATE GOVERNANCE
STAGES OF THE BOARD EFFECTIVENESS REVIEW
NOVEMBER 2024
Decision reached to
undertake an internal
Board effectiveness
review and providers
approached to support
the process
NOVEMBER 2024
Independent Audit Ltd
appointed to support
internal effectiveness
review
DECEMBER 2024
Questionnaires drafted
and input sought from
the Chair and each of
the Committee chairs
JANUARY 2025
Questionnaires issued
and responses received.
Report reviewed by
Chair and Chief
Governance Officer and
draft action plan for
2025 prepared
FEBRUARY 2025
The Board and its
Committees reviewed
the reports and
approved the action
plans for 2025
AREAS OF FOCUS
2024 FOCUS PROGRESS IN 2024 FOCUS IN 2025
Board structure, composition
anddynamics
Review Board inductions and ongoing
training
The Nominations, Culture & Governance Committee appointed
Wendy Mars as a member of the Remuneration Committee
with effect from 24 May. Wendy was appointed to ensure a link
between remuneration and non-financial key performance
indicators. Following her appointment, Wendy received an
induction from the reward team
To consider succession planning for
the Non-Executive Directors who are
due to retire in the near term and
consider longer-term succession
planning for the Executive Team
The Board’s role
Continued focus on strategic progress,
ambitions and options
Oversight of the continuing
transformation particularly around
culture, people and succession
Focus on risk management as the Group
continues to change and respond to the
external environment
At each meeting, the Board considers the progress of the
strategy programme outlined in the Capital Markets Day in
2023 and in May and December, reviewed progress on the
strategic initiatives
Purpose and culture was one of the transformation workstreams.
The proposed new purpose, culture and behaviours was
presented to the Nominations, Governance & Culture
Committee in May and launched globally in September
The Board focused on principal risks such as compliance
including anti-bribery and corruption and received
regular updates from the chairs of the committees regarding
the principal risks discussed during their meetings
Continued focus on strategic focus,
ambitions and future growth
opportunities
Focus on emerging technologies
including digital and AI and their
associated risks and opportunities
Continue to focus on areas of risk and
challenge to the business, for example,
supply chain and cyber security
The Board at work
Board site visits and deep dives to
continue to build on Directors’
induction, training and development
The Board continued to build on Directors’ induction, training
and development throughout the year through site visits and
Meet the Board events at different Rolls-Royce locations
globally. In Derby, UK in May, a Meet the Board event took
place after the AGM. In June, members of the Safety, Energy
Transition & Tech Committee visited Power Systems in
Friedrichshafen, Germany and, in September, the Board visited
our facilities in Washington and Indianapolis, US. Individual
directors have continued to visit various sites, including
Raynesway, UK
Board site visits and deep dives for
opportunities to meet with our people
and observe how our new purpose
and behaviours are being received in
the business
BOARD EFFECTIVENESS
Review of the Board and Committees
Having undertaken an externally facilitated board effectiveness review
in 2023, this year we carried out an internal review of our Board’s
effectiveness, supported by Independent Audit Ltd. We took a
questionnaire-based approach and focused on Board composition
and dynamics; the Board’s role; and the Board at work. Independent
Audit Ltd has not provided any other service to the Company during
the year and have agreed this disclosure.
The review took the form of an online questionnaire and the scope
was agreed with the Chair and Chief Governance Officer in advance.
Independent Audit Ltd provided an anonymised report and the Chair
and Chief Governance Officer, in discussion with the Board, have
agreed an action plan for 2025. Each Committee chair considers
feedback for the Committees for which they are responsible.
In addition to this review, during a private meeting of the
Non-Executive Directors, the Senior Independent Director led a review
of the Chair’s performance without the Chair present. The Nominations,
Culture & Governance Committee has an item at the end of each agenda
without any management present and, during these sessions, they
discuss the performance of the Chief Executive throughout the year.
The Chair also conducted the Chief Executive’s annual performance
review having sought feedback on his performance from the Board.
These meetings concluded that both the Chair and the Chief Executive
were effective and feedback was shared with each of them. In addition,
the Chair met with each of the Non-Executive Directors separately to
discuss their individual performance and gather feedback on the Board
and Committee evaluation.
77
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
CORPORATE GOVERNANCE
1. DR JÖRG STRATMANN
CEO – Rolls-Royce Power Systems AG
5. CHRIS CHOLERTON
Group President
9. ADAM RIDDLE
President – Defence
Chairman & CEO – Rolls-Royce North America
2. NICOLA GRADY-SMITH
Chief Transformation Officer
6. TUFAN ERGINBILGIC
Chief Executive
10. SIMON BURR MBE
Group Director of Engineering, Technology
& Safety
3. DR ROB WATSON
President – Civil Aerospace
7. SARAH ARMSTRONG
Chief People Officer
4. HELEN MCCABE
Chief Financial Officer
8. MARK GREGORY
General Counsel
Appointment details and career highlights of the members of the Executive Team are available at www.rolls-royce.com
7 8
6 7 10984
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Executive Team
Financial and
operating
drivers review
Business
review
Energy transition
& technology
committee
Executive audit
committee
Commercial
committee
People
committee
Operating
committee
Investment
committee
Executive Team
The Chief Executive is responsible for the running of the Group. He leads the Executive Team which comes together to review, agree and
communicate issues and actions of Group-wide significance and is supported by the governance framework, introduced in 2023 and
shown above, in the delivery of its remit. A summary of responsibilities is set out below:
Executive audit committee Operating committee
— to consider principal risks
—
to review delivery of the in-year internal audit plan and to finalise
the internal audit plan for the forthcoming year ahead of Group Audit
Committee approval
— to improve Group-wide operational performance
— to review supply chain performance
— to oversee critical enablers of operational performance
People committee Investment committee
—
to ensure that Rolls-Royce has a winning team to deliver our
strategic priorities
—
to keep under review talent and succession, performance and
leadership, reward, purpose and experience
— to make capital allocation decisions for all investments, acquisitions
and divestments in line with our strategy
— to review performance of in-flight investments
Energy transition & technology committee Financial and operating drivers review
—
to ensure the Group is playing a winning role in energy transition
and future technologies
— to consider the rationale for and progress of investments in energy
transition
—
make capital allocation decisions on technologies that support energy
transition
— to assess strategic opportunities for future technology investments
—
to review in-year financial performance and operational drivers
against plan
— to agree interventions where required
Commercial committee Business review
— to develop Group-wide pricing strategy and commercial capability
— to identify and deliver pricing actions and capability improvements
to enable a step change in performance
—
to review performance by division, focusing on in-year and
five-year horizons
— includes financial and operational performance, people and talent,
strategic initiatives, principal risks and engagement with our people
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
EXECUTIVE TEAM
KEY AREAS OF FOCUS IN 2024
Launch of our new purpose and behaviours
Update to Our Code and Group policies
Executive Team and key role succession planning
I am pleased to present the 2024 report of the Nominations, Culture &
Governance Committee which provides an overview of our key areas
of focus during 2024.
Composition of the Board and its committees
The Committee is responsible for keeping the structure, size and
composition of the Board and its committees under review. In 2024,
there were no changes to the composition of the Board. During the
year, the Committee considered my re-appointment and that of Wendy
Mars, each for a three-year term. As all Non-Executive Directors are
appointed annually once they have served six years on the Board, Nick
Luff and Bev Goulet were reappointed for a further one-year term.
During May, Wendy Mars was appointed to the Remuneration
Committee to ensure a link between remuneration and the topics that
underpin the non-financial key performance indicators which are
considered by the Safety, Energy Transition & Tech Committee.
The role of each committee is set out on page 72. The full terms of
reference and terms of reference applicable to all Committees can be
found at www.rolls-royce.com. See page 72 for our current Board
committee membership.
Summary biographies for the Directors can be found on pages 68 to
69. Full biographies can be found at www.rolls-royce.com
Board appointment, induction and development
Prior to making any new appointments to the Board, the Committee
considers the skills and attributes required and agrees a profile. The
Committee also provides input into a shortlist of candidates and is
involved in the interview process for all appointments. The Committee
recommends the appointments to the Board for approval. All
Non-Executive Directors are appointed to the Nominations, Culture &
Governance Committee and to other Board committees, depending
on the skills they bring.
The Chief Governance Officer arranges a comprehensive, tailored
induction programme for newly-appointed Non-Executive Directors,
which includes dedicated time with the Executive Team and senior
management and scheduled trips to business operations. The programme
is tailored based on the experience and background of the individual
and the requirements of the role including the role they will be taking
up or the Board Committees they will join. All Directors visit the Group’s
main operating sites as part of their induction and are encouraged to
make at least one visit to other sites every year. Site visits are an
important part of the induction process, as well as for continuing
education. They help Directors understand the Group’s activities through
the direct experience of seeing our facilities and operations and by
having discussions with a diverse group of our people. Information on
our site visits during the year can be found on page 74.
It is important that the Directors continue to develop and refresh their
understanding of the Group’s activities and, where necessary, they
will deep dive into specific areas (see page 74). In addition to
understanding the Group, it is equally important that Directors continue
to update their skills and knowledge and receive relevant training where
necessary as well as ensuring there is an appropriate focus on the
Group’s different stakeholders. The Board’s engagement with its
stakeholders is set out on pages 64 to 65.
My fellow Directors and I also attend relevant external seminars,
conferences and training events to keep up-to-date on developments
in key areas. In December, we received training in relation to the recent
Economic Crime (Transparency and Enforcement) Act.
People and culture
During 2024, the Committee received reports from the speak up line
and updates from our Employee Champions. We reviewed key trends
in the 2024 speak up report. Information on the speak up line can be
found on page 51.
“The development of our leaders is
critical to ensuring the right culture
and behaviours are embedded
Group-wide and to ensure we maintain
the right skills and capabilities to meet
our strategic plan.”
The Committee discussed human rights related issues across the Group
and received regular updates on the purpose and culture
transformation workstream, which included the new purpose statement
and behaviours. In addition, during 2024 Our Code and Group policies
were refreshed to ensure alignment with the purpose and culture
transformation workstream outputs.
The Board diversity policy aims to maintain gender parity. As there
were no changes to the Board during 2024, we continued to meet the
Board’s ambition in this regard. With my position as Chair of the Board
and with Helen McCabe as our Chief Financial Officer, we continue to
exceed the Board’s intention that at least one senior Board member
will be a woman. In addition, one of our Board members, Lord Jitesh
Gadhia, is from a non-white ethnic minority background. The Board
diversity policy is available at www.rolls-royce.com
The Committee continued to receive regular updates on progress with
our diversity, inclusion and belonging strategy across the Group
and received updates on progress against key metrics and targets
during 2024.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Nominations, Culture & Governance
Committeereport
Members All Non-Executive Directors
Biographies are on pages 68 and 69
Remit See page 72
During 2024, the Committee noted that significant progress had been
made in fostering inclusion and belonging, demonstrated by increased
engagement and participation across various initiatives in the Group
(see the People and culture section on page 46).
Diversity in our Executive Team continues to stand at 30%. The
Committee supports and monitors Group activities to ensure that women
and other under-represented groups have equal opportunities to
progress to the senior management population (see page 50). We
recognise that there is still more to do. Improvements in ethnicity
balance are beginning to be seen in the wider Group across the
graduate and high potential populations.
Creating a high-performing merit-based organisation, where everyone,
regardless of their identity feels able to thrive and belong remains a
priority and we continue to track progress against our 2025 targets
(for more information see page 50). The Board recognises that this is
an area subject to changing laws and regulations and that the policies
and processes within Rolls-Royce must also evolve and adapt.
Disclosures under UK Listing Rule 6.6.6 can be found on page 222.
Succession planning
The Committee considers the current skills, experience and tenure of
the Directors and assesses future needs against the longer-term
strategy of the Group. The skills and experience criteria for incoming
directors is discussed and agreed before the recruitment process
is commenced.
The Committee plays a vital role in promoting effective Board and
leadership succession, making sure it is fully aligned to the Group’s
strategy. In July, the Committee discussed Executive Team succession,
which included a review of our succession pool.
Principal risk review
The Committee considers the principal risk of talent and capability as
part of the regular discussion on succession planning and, in 2024, the
discussions related to the transformation and the new organisational
design for the Group. The development of our leaders is critical to
ensuring the right culture and behaviours are embedded Group-wide
and to ensure we maintain the right skills and capabilities to meet our
strategic plan.
Directors’ conflicts of interest
As required under the Code, any additional external appointments
taken up by Directors during the year are considered by the
Committee and approved by the Board prior to the Directors
accepting such appointments. The Committee considers any conflicts
that may arise as a result of any external appointments taken up by the
Directors and the Board monitors the extent of those interests and the
time commitment required to fulfil them to ensure that effectiveness is
not compromised. As part of the Committee’s discussions, external
appointments are considered against the parameters set by ISS. The
Committee has found this to be a useful gauge when discussing whether
there is potentially any impact on Directors’ time commitments when
taking on additional external appointments.
In 2024, the Directors demonstrated a strong commitment to the
Company, as shown by their high levels of attendance at all our
meetings (see page 74). During the year, the Board considered an
external appointment for Paulo Cesar Silva as an adviser to Electra.Aero.
The Committee noted that although the appointment may
represent a potential conflict of interest, the Committee agreed
appropriate mechanisms to manage the potential conflict and concluded
that the external appointment was not considered time restrictive. In
addition, the appointment of Lord Jitesh Gadhia as senior independent
director at Taylor Wimpey, where Jitesh has been a non-executive
director, was considered and approved, recognising that the time
commitment of a senior independent director can be greater than that
of a non-executive director. In December, the Committee considered
and approved my appointment to the Industrial Advisory Council
established by the UK Government.
Engagement with shareholders
For information on how the Board has engaged with stakeholders
during the year, see pages 64 to 65.
Corporate governance
Throughout 2024, we have continued to watch the evolving agenda in
the UK on audit and corporate governance reform. We will continue
to keep good governance at the core of all we do and are pleased to
report another full year of compliance with the 2018 Code, as reported
on page 70. During 2025, we will continue to work on our internal
governance arrangements to ensure they are aligned with our
organisational design, in addition to ensuring compliance with the
revised 2024 Code.
Extracts from the Group’s governance framework, which is also applied
to our subsidiary companies and is our response to the Wates principles,
are available at www.rolls-royce.com
Summary
The work of the Committee in 2024 was rated highly in our Committee
evaluation report and I would like to thank my Board colleagues for
their support and counsel during 2024. The evaluation clearly identified
those areas for focus in 2025. In particular, we will focus on succession
planning for those Non-Executive Directors who will retire in the
near-term, namely Bev Goulet and Nick Luff. We will also consider
longer-term succession planning for members of the Executive Team.
I look forward to working with my fellow Directors in 2025 on these and
other important topics within the remit of the Committee.
Dame Anita Frew
Chair of the Nominations, Culture & Governance Committee
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
NOMINATIONS, CULTURE & GOVERNANCE COMMITTEEREPORT
I am pleased to present the 2024 report of the Audit Committee, which
provides an overview of the areas of focus for the Committee during
the year, as well as its key activities and the framework within which
it operates�
The composition of the Committee has not changed during 2024 and
the membership is set out on page 72. George Culmer, Bev Goulet and
I have recent and relevant financial experience. The Board remains
confident that the Committee members have the appropriate knowledge,
skills and experience to fulfil the duties delegated to the Committee
and that the Committee as a whole has the competence relevant to the
sectors in which the Group operates.
At the 2024 AGM, we were pleased to have the opportunity to meet
with several shareholders in person as well as to hear from
shareholders virtually. We were able to answer questions both in
person and via the live stream of the meeting.
This report sets out the work of the Committee in 2024 with a focus on
the issues relevant to the Group’s financial reporting, considering how
business performance is reflected in financial reporting, assessing key
accounting judgements and ensuring ongoing quality of the related
disclosures. In our meetings, we have robust conversations to ensure
management are challenged, to satisfy ourselves that the judgements
taken and the disclosures made are appropriate for the Group.
We have continued to support the Board in its considerations of climate
change risks and opportunities. The Committee has reviewed and
approved the TCFD recommendations (see page 36) and noted the
progress during the year as the disclosures were being prepared for
the 2024 Annual Report. We have continued to ensure that the impact
of climate change, where material, is reflected in the financial statements
and disclosed accordingly, including the assumptions used in the
forecasts for the assessment of going concern and viability, long-term
contract accounting, impairment testing and deferred tax asset
recognition.
The Committee undertook deep dives of the principal risks we oversee,
including on business interruption and on cyber security.
We also meet regularly with the head of tax to review the management
of tax and customs risks. The Committee approves annually our tax
policy to ensure it remains appropriate for the Group and we receive
updates on its application as well as changes to relevant laws
and regulations. We are cognisant of the changing external reporting
requirements and discussed the Group’s approach.
The Committee continues to oversee the assurance activity conducted
by internal audit. The Committee monitored delivery of their 2024
internal audit plan, considered the findings from internal audit reports
and reviewed the implementation of identified actions. We also approved
the 2025 internal audit plan, confirming the focus on key risks and
adequate cover of all material operations and appropriate
geographical coverage. We undertook an external, independent
assessment of internal audit, noting the positive assessment and
agreeing the actions recommended for further improvement.
Financial reporting
The Group has complex long-term contract accounting and every year
the Committee spends much of its time reviewing the accounting
policies and judgements implicit in the Group’s financial results. In 2024,
we considered the implications of our assumptions and key accounting
judgements on the improved financial performance of the Group and
the Group-wide transformation programme, as well as changes in the
global macro-economic and political environment. We have ensured
that the disclosures in respect of all key areas of judgement are
appropriate and balanced. We assess and consider the sensitivity of
the estimates to changes in key assumptions which are summarised in
note 1 of the Consolidated Financial Statements on page 122.
Fair, balanced and understandable
As part of its review of the 2024 Annual Report, the Committee
considered whether the report, taken as a whole, is fair, balanced and
understandable and that it provides the information necessary for
shareholders to assess the Group’s position, performance, business
model and strategy. In so doing, the Committee considered the
financial reporting procedures and internal controls in place in
preparing the report. There is a robust governance framework with
well documented planning and procedures for the preparation of the
report and a collaborative approach across all those who contribute
to the report. The Committee concluded that the basis of preparation
was consistent with financial reporting throughout the year and that
all significant issues had been considered. The Committee was satisfied
that the process was effective and that the messaging was consistent,
particularly the narrative reflecting the financials. It was confirmed to
the Board that, when taken as a whole, the Annual Report is fair,
balanced and understandable.
KEY AREAS OF FOCUS IN 2024
Ensured our business performance is fairly presented with equal
prominence of statutory and alternative performance measures
Reporting of climate change and environmental data and the
interaction with accounting assumptions and financial reporting
Continued oversight of internal controls improvement programmes
and of effectiveness of risk management with a focus on cyber security
and business continuity
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Audit Committee report
Significant issues relating to the 2024 financial statements:
A summary of the principal matters we considered in respect of the 2024 Consolidated Financial Statements is set out below.
AREA OF FOCUS CONSIDERATIONS
Long-term contract
accounting
The Committee considered the assessment of estimates of future revenue and costs on the Group’s long-term
contractual arrangements. This has continued to be a particular focus for the Committee due to the complex
nature of long-term contract accounting, the changing macro-economic conditions with supply chain
challenges leading to some disruption in respect of parts availability and the implications of this on
forecasting future costs and capacity output. As part of our considerations, we reviewed onerous contracts
given their sensitivity to changes in revenue and cost assumptions. We also reviewed catch-ups to understand
the changes to revenue and cost assumptions driving them. We reviewed the disclosures and concluded
these, together with the assessments, were appropriate. See note 1 in the Consolidated Financial Statements.
Tax accounting
The Committee discussed the recoverability of deferred tax assets and the forecasts, assumptions and
sensitivities applied in order to ascertain the recognition and recoverability of the deferred tax assets. The
Committee discussed the basis for the recognition of the UK deferred tax assets and considered the
judgements and estimates necessary to assess the recoverability of those deferred tax assets. This was
particularly important during 2024 due to the improving financial performance and the delivery against our
mid-term targets. We considered the recognition of the UK deferred tax assets in light of the requirements
set out in IAS 12 Income Taxes to assess probable profits. We considered the recoverability of advance
corporation tax in light of the Group’s plans for shareholder distributions. We confirmed the approach, which
remained consistent with that taken in 2023, together with the disclosures set out in notes 1 and 5 to the
Consolidated Financial Statements.
Transformation programme
The Committee considered the impact of the transformation programme, including the organisational design,
on the assumptions and accounting judgements and monitored whether the criteria required for a
restructuring and transformation provision had been met. The Committee also considered whether excluding
these costs from the underlying results was appropriate in light of the Group’s definition of underlying results.
The Committee concluded that the treatment of these costs as non-underlying was appropriate.
Going concern and viability
As in previous years, the Committee reviewed the information, underlying assumptions and downside risks
modelled and presented in support of the going concern and viability assessment. The Committee concluded
that the Group has a strong liquidity position over the going concern period and that there is a reasonable
expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over
the next five years.
Non-financial reporting and
assurance requirements,
including sustainability
The Committee has received updates on the development of non-financial reporting and assurance
requirements in respect of sustainability. This has included updates on climate disclosures under the existing
TCFD recommendations and disclosures, our preparedness for new EU reporting requirements set out in the
Corporate Sustainability Reporting Directive (CSRD), EU Taxonomy, Corporate Sustainability Due Diligence
Directive (CSDDD) and new UK reporting requirements in the International Sustainability Standards
Board (ISSB).
The Committee also received updates on the improving internal controls in relation to process and data and
considered progress made with the Group’s reporting. The Committee has ensured it understands and has
continued to challenge the assumptions in the climate scenarios used by management in respect of viability,
long-term contract accounting, impairment assessments and deferred tax asset recognition. See note 1 in the
Consolidated Financial Statements.
Alternative performance
measures (APMs)
As in previous years, the Committee reviewed the clarity of the definitions and the reconciliation of each APM
to its statutory equivalent. The Committee concluded that there was no undue prominence of the APMs in
the Annual Report. See page 215 for a reconciliation of APMs to their statutory equivalents.
Risk management and the internal control environment
Our risk management and internal control framework is described in
the Principal Risks section on page 52. During 2024, the Committee
reviewed the effectiveness of risk controls and their assurance,
ensuring actions to mitigate where needed and to manage risks in
relation to our appetite for taking risk as described on page 52. We will
continue to focus on risk mitigation controls and risk appetite in 2025,
embedding these more firmly as part of our routine processes and
decision making, including in relation to strategic planning.
We also satisfied ourselves that the processes for identifying and
managing risks are appropriate and that all principal risks and
mitigating actions had been subject, during the year, to a detailed
review by the Board or an appropriate Board Committee. Based on this
and on our other activities, including consideration of the work of
internal and external audit and attendance at the Committee meetings
by divisional and functional risk owners, the Board confirmed that a
robust assessment of the principal risks and emerging risks facing the
Group had been undertaken. Details of our principal risks are set out
on pages 55 to 60. The Board has allocated certain principal risks to
the Committee and we considered these in detail throughout the year,
as described below.
From our discussions, we are satisfied that the principal risks that we
oversee have received appropriate management attention during 2024:
—
Business interruption: the Committee received updates on the status
of the Group’s continuity risk management and specifically reviewed
internal facilities’ resilience.
— Information and data, including cyber: the Committee reviewed the
cyber security risk, including details of controls and comprehensive
mitigation plans, as well as an assessment of risk management
effectiveness.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
AUDIT COMMITTEE REPORT
Internal controls over financial reporting
The Committee specifically reviews the Group’s internal controls over
financial reporting (see page 52). During 2024, we received an update
on the risk assessment to identify the controls considered to be
material and in-scope from a financial reporting perspective. We
monitored progress against the 2024 financial controls programme to
strengthen the financial reporting and compliance controls. We
confirmed completion of identified key activities. We also considered
the external auditor’s observations on the financial control environment.
Effectiveness of risk management and internal
controlsystems
The Committee has conducted a review of the effectiveness of the
Group’s risk management and internal control systems, including those
relating to the financial reporting process. We consider that our review
of the risk management and internal control systems, in place
throughout 2024 and up to the date of this report, satisfies the
requirements of the Code, the DTR and the FRC’s guidance on risk
management. To support this:
— we monitor changes to regulatory requirements with respect to risk
management on an ongoing basis;
—
we review relevant policies and procedures and update where
necessary, in line with regulatory changes and our perspective on
effective approaches to risk management;
— our risk management team and relevant assurance functions, such
as internal audit, review key business processes, including long-term
contract pack reviews and the budgeting process with periodic
reforecasting, identifying key risks and opportunities;
—
we assess and monitor management responses to key audit findings,
including the design of mitigations and developments to existing
controls;
—
a defined anti-bribery and corruption policy has been implemented;
and
— where necessary, we report to the Board and its Committees on key
risk and regulatory matters.
During the course of the financial year, any control weaknesses
identified through the operation of our risk management and internal
control processes were subject to monitoring and resolution in line
with our normal business operations. In 2024, no significant weaknesses
were identified. To further support the enhancement of the existing
internal control environment:
—
risk management specialists have been assigned to review and
monitor the implementation of actions, to ensure these remain
appropriate and aligned to the risks to which they relate;
—
policies and procedures are subject to review and are updated to
align with changes in the underlying control environment; and
— risk owners are accountable for managing these risks.
In addition, and on an ongoing basis, the Board reviews the
effectiveness of the Group’s risk management and internal control
system and continues to:
—
monitor reports from the Executive Team, relating to their assessment
of risks and internal control systems;
—
monitor assurance received from the Executive Team regarding
compliance with relevant policies;
—
monitor assurance received on the effectiveness of the Group’s
internal control environment;
— review reports from this Committee, the Internal Audit function and
the external auditor;
—
review the Group’s response to incidents and threats, including those
related to cyber security and safety; and
—
review information gathered from the Group’s formal whistleblowing
process where issues relate to financial misconduct.
Where opportunities for improvement were identified, action plans
have been put in place and progress is monitored by the Committee.
Going concern and viability statements
Having regard to the net liability position on the Group’s 2024 balance
sheet, we paid particular attention to the going concern and viability
statement. With consideration to the available information, the
Committee confirms it maintains a reasonable expectation that the
Group is able to continue to meet its liabilities as these fall due, over
the next five years.
We reviewed the processes and assumptions underlying the going
concern and viability statements set out on pages 61 and 62,
considering in particular:
— the Group’s forecast funding position over the next five years;
— the forecasts for material subsidiaries making up this position;
—
an analysis of impacts of severe but plausible risk scenarios, ensuring
that these included relevant principal risks;
— the impact of multiple risks occurring simultaneously;
—
additional mitigating actions that could be taken in extreme
circumstances; and
—
the current borrowing facilities in place and the availability of
future facilities.
As a result, we are satisfied that the going concern and viability
statements have been prepared on an appropriate basis.
Internal audit
The head of internal audit regularly attends and reports to the
Committee on internal audit matters including:
—
identifying key trends and headline findings from internal audit
reports issued in the period;
—
details of any specific significant findings raised by internal audit
that warrant the Committee’s attention;
— status of agreed actions arising from internal audit work;
—
progress against the current year’s internal audit plan and any changes
to the plan; and
— the plan of internal audit work for the following year.
I meet the head of internal audit regularly during the year to discuss
the nature of internal audit findings in more depth. We continue to
focus on the nature of issues raised by internal audit and the
timescales to complete the related actions. The future work plan is
risk-based, including risks to both short- and longer-term objectives
while balancing principal risk areas with business-as-usual transactional
activity where controls are understood to be mature and established.
Internal audit also considers the activities of our second line assurance
functions in their approach.
We undertook an external, independent review of the effectiveness of
the Group’s internal audit function. This included an assessment of the
function’s resources, methodologies, plans, performance, reporting
and quality assurance. Based on the report received, we are satisfied
that the scope, extent and effectiveness of internal audit are
appropriate for the Group and that there is a suitable plan in place to
sustain this. Specific actions for further improvement were identified,
the implementation of which will be monitored during 2025.
84
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
AUDIT COMMITTEE REPORT
External audit
PwC were appointed as the Group’s external auditor for the financial
year, commencing on 1 January 2018, following a formal tender process
in 2016. As required by audit partner rotation rules, Ian Morrison took
over as lead audit partner for the 2023 audit, replacing Ian Chambers
who was required to rotate after five years. Other key audit partners
are also required to rotate every five years.
The external audit contract will be put out to tender at least every ten
years. Any future audit tenders will be carried out in line with the FRC’s
practice aid for audit committees. The Committee currently expects to
undertake an audit tender during 2026, with a view to a new audit firm,
if there is a change from PwC, being appointed as external auditor for
the financial year commencing 1 January 2028. We believe that this
timing for the audit tender strikes an appropriate balance between
continuity for the current audit firm and consideration of alternative
firms.
Other than the services detailed below, PwC have no other connection
with the Company or its Directors.
During 2024, the Company complied with the relevant provisions of
The Statutory Audit Services for Large Companies Market Investigation
(Mandatory Use of Competitive Tender Processes and Audit Committee
Responsibilities) Order 2014.
2024 audit
PwC presented its audit plan to the Committee, providing its assessment
of the key audit risks and the proposed scope of audit work. Reflecting
on findings from the half-year review and the developments in the
Group, we agreed the approach and scope of work to be undertaken.
Key risks and the audit approach to these risks are discussed in the
Independent Auditor’s Report (pages 198 to 210), which also highlights
the other risks that PwC drew to our attention.
As part of the reporting of the half-year and full-year results, in August
2024 and February 2025 PwC reported to the Committee on its
assessment of the Group’s judgements and estimates in respect of these
risks and the adequacy of the reporting. Where effective to do so, PwC
also reported on its assessment of the Group’s controls.
I meet with the lead partner regularly throughout the year and the
whole Committee has a private meeting with PwC at least once a year.
The Committee reviewed the quality of the external audit throughout
the year and considered the performance of PwC. To support this, the
Committee members and senior finance personnel undertake annually
an internal evaluation, focusing on a range of factors we consider
relevant to audit quality. The findings from the 2024 audit evaluation
and agreed actions were reviewed and approved by the Committee in
February 2025. Feedback was also received from the auditors on their
performance against their own objectives.
During 2024, the Audit Quality Review Team (AQRT) of the FRC
conducted a review of PwC’s audit of the Group’s Financial Statements
for the year ended 31 December 2023. In September, the AQRT provided
their final report and, as Chair of the Committee, I acknowledged the
findings with the FRC and discussed them with the audit partner. The
report assessed the audit as good, the highest rating achievable, with
no reportable findings from the AQRT’s inspection.
From its own reviews, the Committee concluded that there had been
appropriate focus and challenge by PwC on the primary areas of the
audit and that they had applied robust challenge and appropriate
scepticism throughout the audit. Based on this, and taking into account
the AQRT report, the Committee has recommended to the Board that
PwC be reappointed as external auditors at the 2025 AGM.
Non-audit services
To safeguard the auditor’s independence and objectivity, and in
accordance with the FRC’s ethical standard, we do not engage PwC
for any non-audit services, except where it is work that they must, or
are clearly best-suited to, perform. Accordingly, our policy for the
engagement of the auditor to undertake non-audit services broadly
limit these to audit-related services such as reporting to lenders and
grant providers, where there is a requirement by law or regulation for
the auditors to perform the work. All other non-audit services are
considered on a case-by-case basis in light of the requirements of the
FRC’s ethical standards and in compliance with our own policy.
Fees paid to PwC are set out in note 7 to the Consolidated Financial
Statements on page 149. All proposed services must be pre-approved
in accordance with the policy which is reviewed and approved annually.
Above defined levels, my approval is also required before PwC is
engaged. We also review the non-audit fees charged by PwC on a
quarterly basis. Our non-audit services policy can be found at
www.rolls-royce.com
Non-audit related fees paid to the auditor during the year were £0.8m
(2023: £0.9m), representing 6% (2023: 7%) of the audit fee. This included
£0.7m (2023: £0.7m) relating to the review of the half-year results. Our
annual review of the external auditor takes into account the nature and
level of all services provided.
Based on our review of the services provided by PwC and discussion
with the lead audit partner, we concluded that neither the nature nor
the scale of the non-audit services gave any concerns regarding the
objectivity or independence of PwC.
Summary
This report provides an understanding of the Committee’s work over
the past year and I would like to thank my fellow colleagues on the
Committee for their support during the year. Our evaluation noted that
the Committee is operating well. Our focus in 2025, in addition to our
oversight of the reporting environment, will include the control
framework and risks and the role of both the risk and internal audit
teams to ensure compliance with the 2024 UK Code.
Nick Luff
Chair of the Audit Committee
Members Nick Luff (Chair)
George Culmer
Lord Jitesh Gadhia
Beverly Goulet
Biographies are on pages 68 and 69
Remit See page 72
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GOVERNANCE REPORT
AUDIT COMMITTEE REPORT
I am pleased to present my third report as Chair of the Committee and
would like to thank our shareholders for the support provided at our
AGM for our new remuneration policy. Over 95% of votes cast
supported the new policy, which enabled us to return to a conventional
remuneration structure with an increased emphasis on long-term
performance metrics aligned to our transformation. We are very
appreciative of this strong level of shareholder support.
I am delighted to welcome Wendy Mars who joined the Committee in
May. Wendy is Chair of our Safety, Energy Transition & Tech Committee
and provides very welcome insight, including on our non-financial key
performance metrics.
This letter outlines the key decisions taken by the Committee
during 2024 and two proposed minor amendments to the policy for
which we are seeking shareholder approval at the 2025 AGM.
Business context for 2024
At the Capital Markets Day in November 2023, shareholders were
presented with a clear vision for Rolls-Royce to become a high-
performing, competitive, resilient and growing business. There has
been excellent progress made against these medium-term targets.
TufanErginbilgic and the Executive Team have delivered continued
improvement in performance levels with impressive progress made on
the Group’s transformation, generating real value for shareholders.
Achievement of the medium-term guidance will take Rolls-Royce
significantly beyond any previously achieved level of financial
performance and we are on track to deliver the commitments ahead
of schedule. We are determined to incentivise the management to build
upon the progress made and maintain momentum. Success will require
continued and intense focus from management to embed the
transformation and deliver a sustained cultural shift in performance.
Implementation and amendment of the remuneration policy
Following shareholder approval, we have now returned to a more
conventional remuneration structure and this has been cascaded through
all leadership levels. There is strong incentive alignment between the
Executive Directors and the wider workforce with clear, forward-looking,
stretching targets aligned to our medium-term ambition. However, since
the policy was approved, the Investment Association has issued revised
principles of remuneration which have prompted us to request two minor
amendments to the policy. The amendments are to enable a higher
proportion of annual incentive to be paid in cash rather than deferred
shares, where an Executive Director has already established a very
significant level of share interest relative to salary, and to strengthen
post-cessation shareholding requirements to align with the
recommendations of the Investment Association.
Sustainability
We are sensitive to our responsibilities in reducing global carbon
emissions. In 2024, there was a full strategic review of sustainability,
and a granular plan, with defined metrics and targets, has been approved
by the Board. Accordingly, we are now in a position to incorporate
specific performance measures aligned to the strategic review within
the Long-Term Incentive Plan, focusing on a reduction in Scope 1 + 2
emissions�
The 2024 annual incentive scorecard continued to be partly assessed
against safety, our number one priority, in addition to employee
engagement. For 2025, we are introducing further refinements to both
of these metrics to ensure that they drive the behaviours which are
expected from our people.
Remuneration decisions related to 2024
The current remuneration policy was agreed by shareholders at the
AGM in 2024. Key features of the policy can be found on page 88 and
how it operated during 2024 on pages 88 and 89.
Annual incentive outturn in respect of 2024
The annual incentive outturns for 2024 are above target, and align well
with the wider stakeholder experience. The performance measures for
2024 were weighted 80% towards Group performance and 20% towards
personal performance. At Group level, both free cash flow of £2,468m
and underlying operating profit of £2,565m were significantly ahead
of the original targets and maximum threshold for performance. This
is exceptional performance relative to target and to prior years and
rightly reflects maximum outturns for these elements. The scorecard
continued to include two strategic measures to incentivise quality of
financial performance. Underlying operating margin performance of
13.8% was ahead of the level required to trigger maximum payout,
reflecting very significant year-on-year improvement. Operating cost
performance was also ahead of target, with this portion vesting at 100%
of maximum.
Non-financial performance metrics for 2024 related to safety and
colleague engagement. A new survey was implemented in 2024 to
provide a refreshed way of listening to our people and measuring both
engagement plus the experience of our people in specific areas relevant
to our new purpose and behaviours. For 2024, incentive targets were
linked to colleague engagement relative to a global manufacturing
peer group. For future years, we will have a baseline to track progress,
with greater emphasis on behaviours relevant to our own purpose and
transformation agenda. For 2024, the engagement score was above
the external manufacturing peer group index but below the level
necessary to achieve a maximum outturn. An outturn of 62.5% of
maximum vesting was achieved. Colleague safety performance relative
to target was strong with this portion vesting at 83.3% of maximum. In
reviewing incentive outturns, the Committee considered the experience
of internal and external stakeholder groups, in particular our
employees and shareholders.
Our global incentive arrangements include strong alignment in targets
throughout the Group which means that our wider workforce benefit
from the excellent performance achieved in 2024. We are delighted
with the continued positive experience for our shareholders given the
market reactions to our 2024 half-year results and our strategic progress.
In this context, the Committee is pleased to recognise this
excellent performance in an overall outturn of 100% of maximum for
TufanErginbilgic and 100% of maximum for Helen McCabe. In line with
the new policy, half of the awards will be delivered in shares which will
be granted in March 2025, using the share price at that time. These
shares will be deferred for three years.
KEY AREAS OF FOCUS IN 2024
Implementation of our new remuneration policy following approval by
shareholders
Delivering a new global share plan for the wider workforce
Developing refreshed financial and non-financial performance metrics
to ensure alignment with our strategy, ongoing transformation agenda
and new purpose and behaviours
Review of remuneration policy following publication of updated
Investment Association principles of remuneration
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Remuneration Committee report
Members Lord Jitesh Gadhia (Chair)
George Culmer
Beverly Goulet
Wendy Mars (joined May 2024)
Biographies are on pages 68 and 69
Remit See page 72
Long-term incentive plan (LTIP)
Under the new policy, we have reinstated an LTIP for Executive
Directors and their first awards were granted in May 2024. No standard
awards vested for the performance period ended 31 December 2024.
However, under the terms of the buyout awards agreed for Helen
McCabe on joining, some performance shares were granted with
equivalent vesting terms to those which were forfeited upon Helen’s
resignation from her previous employer. The performance
conditions for these shares will deliver a vesting level of 98% based
upon financial performance over the period 1 January 2022 to
31 December 2024�
Wider workforce context
In parallel with the implementation of our new remuneration policy, we
launched a new all-employee share plan for the wider workforce. We
previously offered tax approved ShareSave and SharePurchase plans
in the UK and a cash settled phantom ShareSave plan for colleagues
outside the UK.
Coincident with our mid-year results, we announced a one-off award
of 150 shares for all global colleagues. ‘Your Shares: Gifted’ has resulted
in over 99% of our global workforce being directly invested in our
purpose and strategy. In 2025, we will introduce an ongoing global
SharePurchase plan ‘Your Shares: Matched’ which will allow our
colleagues to continue to share in our success, enabled by affordable
share ownership.
Global inflationary pressures have started to reduce across most of our
locations worldwide but wage inflation remains elevated in most of the
talent markets in which we operate. In 2024, the median base pay
increase in the UK was 5%, with an average increase across the UK
workforce of 4.69%. We have agreed a multi-year pay deal with our
main UK trade union represented colleagues to cover the period up to
28 February 2027. This includes a total average increase of 5.5% in
2025�
Looking ahead – summary implementation of the
remuneration policy in 2025
Salary
The Committee has reviewed the salaries for the Chief Executive and
Chief Financial Officer and has concluded to make an award of 5% for
both Tufan Erginbilgic and Helen McCabe effective 1 March 2025. This
is below the median increase for the broader UK population for 2025
of 5.5%, and reflects their performance in role and wider market
context for executive roles in multinational corporations of similar size
and complexity.
We explained last year that our policy was benchmarked in mid-2023
against typical FTSE 50 levels. The progress that is being delivered by
our Executive Team has taken the organisation into the FTSE 15 for
most of 2024. We are committed to ensuring that we are able to attract
and retain global leaders of the calibre required of our organisation
and market context and continue to pay close attention to this area of
our responsibility�
Annual incentive
The 2025 annual incentive measures and weightings will be slightly
updated from 2024 to reflect our evolving priorities. The measures will
include: free cash flow (40%); operating profit (30%); strategic
objectives of customer delivery (5%) and operating profit margin (15%);
people (5%) which includes engagement and colleague experience
supporting the behaviours that we are seeking to embed in our
organisation; and safety (5%) which remains the number one priority
for all of our people.
Long-term incentive plan
The LTIP award will be 375% of salary for the Chief Executive and 275%
for the Chief Financial Officer. Following the three-year performance
period, any vesting will be subject to a mandatory two-year holding
period. The LTIP measures will include: free cash flow (30%);
operating profit margin (30%); Scope 1 + 2 emissions (10%); and relative
TSR (30%); assessed in equal parts against the FTSE 100 and the S&P
Global Industrials index constituents.
Chair and Non-Executive Director fees
The Committee review the fees paid to the Chair and the Chair, together
with the Executive Directors, review the fees paid to the Non-Executive
Directors. It was agreed in 2023 to review fees annually, although not
necessarily to increase them, to ensure that they remain consistent with
market practice and reflect any changes in the responsibility,
complexity and time commitment of the role. Having reviewed external
benchmarking reports and in order to ensure the fees do not fall behind
our peer group, an increment of 5% was recommended from 1 March
2025� See page 109�
Remuneration Committee advisers
During 2024, the Committee had access to advice from WTW. WTW
were appointed by the Committee following a formal tender process
in 2021. Total fees for the advice provided to the Committee during the
year by WTW were £99,850 (2023: £174,500). Fees are based on a time
and materials basis. WTW also provided human capital and benefits
services to the Group. No Directors have a connection to WTW.
The Committee requests that WTW attend meetings periodically
during the year. The Committee is exclusively responsible for reviewing,
selecting and appointing its advisers and is satisfied that the advice it
has received has been objective and independent and that there is no
conflict of interest associated with any advice provided. WTW is a
member of the remuneration consulting group and, as such,
voluntarily operates under the code of conduct in relation to executive
remuneration consulting in the UK.
In 2024, the Committee carried out a review of the performance of
WTW. This focused on the strength of the WTW team, treatment of
sensitive topics and their awareness of Rolls-Royce and its
stakeholders in the context of remuneration. The findings from this
review and agreed actions were approved by the Committee.
Summary
I am delighted with the progress that is being made on the
transformation programme and the impact that this is having for
shareholders. We are pleased with the level of alignment we have
managed to achieve between shareholders, management and the wider
workforce. I am excited about the role that the Committee can
continue to play in reinforcing the performance culture that we are
building.
Lord Jitesh Gadhia
Chair of the Remuneration Committee
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REMUNERATION COMMITTEE REPORT
Executive Directors summary policy and implementation table 2024
Base salary
Purpose and link
to strategy
To attract and retain individuals of the right calibre to develop and execute the business strategy.
Key features of
current policy
Salaries are reviewed annually but not necessarily increased. Decisions on salary are informed but not led by
reference to companies of a similar size, complexity and international reach.
Implementation in 2024
A salary increase of 4.5% was awarded to Tufan Erginbilgic and to Helen McCabe effective 1 March 2024. This increase
was in line with the average increase for the UK management population and lower than the average increase for
the wider workforce.
In line with the previous policy, a proportion of salary paid up to 31 May 2024 was deferred into shares for two years
(30% for the Chief Executive and 20% for the Chief Finance Officer). This arrangement ceased from 1 June 2024.
Benefits
Purpose and link
to strategy
To attract and retain individuals of the right calibre to develop and execute the business strategy.
Key features of
current policy
Benefits may include car allowance and related costs, financial planning assistance, private medical insurance,
life assurance and other appropriate benefits at the discretion of the Committee.
Implementation in 2024
No changes to benefits.
Remuneration at a glance
This section provides a summary of the current remuneration policy and its implementation that was approved by a binding shareholder vote at
the AGM on 23 May 2024 (see page 110). The full policy can be found on the corporate governance section at www.rolls-royce.com
Summary of our current remuneration policy
Fixed pay
Variable pay
1 Return on capital will be replaced by Scope 1 + 2 greenhouse gas emission targets for the LTIPs awarded from 2025
Malus and clawback – Incentive awards are subject to malus and clawback provisions where there has been: a material
misstatement of audited results; serious financial irregularity; material financial downturn or an event causing a material
negative impact on the value of the Group; material failure of risk management; a serious breach of Our Code; individual
misconduct or actions that materially damage the Group; a breach of or inadequate response to a significant HSE or other
environmental issue; failure to adequately manage/supervise others which in turn led to one of the above triggers; and/
or materially incorrect calculation of an award. For awards issued under the incentive plan these provisions apply from
the start of the performance period to three years after the date of grant or the settlement date, if later.
Shareholding requirement – in line with the Rolls-Royce shareholding requirements policy, Executive Directors are required
to establish and maintain a level of share ownership in proportion to a percentage of base salary. The shareholding
requirement is 400% for the Chief Executive and 300% for the Chief Financial Officer. Executive Directors are also required
to retain the lower of their shareholding requirement or their actual shareholding at the date of leaving for 12 months after
leaving and then half of that amount for the following 12 months. This requirement will be further strengthened through
the changes proposed at the 2025 AGM.
Base salary
Benefits
Retirement
Annual Incentive
50% deferral for three years
Long-term incentive plan
Three-year performance period plus
two-yearholdingperiod
30%
free
cash flow
30%
operating
margin
30%
relative
TSR
10%
return on
capital
1
80% Group
+
20% individual
performance performance
Financial
— Cash
— Profit
— Margin
Non-financial
— Safety
— Engagement
— Customer
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Executive Directors summary policy and implementation table 2024 continued
Retirement
Purpose and link
to strategy
To attract and retain individuals of the right calibre to develop and execute the business strategy.
Key features of
current policy
Executive Directors are offered membership of a defined contribution plan. A cash allowance may be payable
in lieu of contributions to the defined contribution plan.
The maximum contribution is 12% of base salary only, in line with the rate offered to the wider UK workforce.
Implementation in 2024
Contribution/allowance of 12%, in line with the rate for the wider UK workforce.
Annual incentive
Purpose and link
to strategy
We reward annual performance against stretching financial, strategic and individual targets aligned to delivery
of the Group’s strategy. Mandatory deferral reinforces retention and enhances alignment with shareholders by
encouraging longer-term focus and sustainable performance.
Key features of
current policy
An annual award which may be based on a combination of financial, operational or individual performance measures
aligned to the Group’s strategy. At least half the incentive awarded in any year will be deferred into shares, normally
for a period of three years. Vesting of deferred shares is dependent on continued employment or good leaver status.
The Committee may apply discretion to adjust any formulaic outturn. Malus and clawback provisions apply.
Maximum annual opportunity: 200% of base salary.
Implementation in 2024
An outturn of 195.7% of target (97.8% of maximum) for Tufan Erginbilgic and 195.7% of target (97.8% of maximum)
for Helen McCabe.
Long-term incentive plan
Purpose and link
to strategy
We incentivise the execution of strategy, driving long-term value creation and sustainable long-term returns to
shareholders.
Key features of
current policy
Awards are subject to performance targets normally assessed over three financial years. The number of shares will
be adjusted to reflect performance on the third anniversary of the grant. The shares will vest on the five-year
anniversary of the grant, after a two-year holding period.
The Committee may apply discretion to adjust any formulaic outturn. Malus and clawback provisions apply.
The maximum long-term incentive award for Executive Directors is 375% of base salary.
Implementation in 2024
Awards were made in May 2024 for the performance period ending 31 December 2026.
There were no standard awards vesting during the year. However, 452,953 shares awarded to Helen McCabe under
the terms of the buyout of awards forfeited from her previous employer vested in February 2024. Full details of the
buyout were included in the 2023 remuneration report.
Shareholding requirement
Purpose and link
to strategy
To align the interests of Executive Directors to those of shareholders by requiring Executive Directors to build a high
level of personal shareholding in the Company during their employment and for a specified post-employment
holding period.
Key features of
current policy
The shareholding requirement is 400% of base salary for Tufan Erginbilgic and 300% of base salary for Helen
McCabe.
Executive Directors are required to retain the lower of their shareholding requirement or their actual shareholding
at the date of leaving for 12 months after leaving and then half of that amount for the following 12 months.
Planned implementation
in 2024
Shareholdings as a % of salary as at 31 December 2024:
Chief Executive – 2,468.7%
Chief Financial Officer – 911.2%
Alignment with shareholders
The policy ensures alignment with shareholders through a significant part of the overall reward package being delivered in shares with long
holding periods. This alignment will remain the case if shareholders approve the proposed amendments to the current policy at the 2025 AGM
(see page 90).
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GOVERNANCE REPORT
REMUNERATION COMMITTEE REPORT
Introduction
The policy will take effect from immediately after the AGM to be held on 1 May 2025, subject to shareholder approval.
Key policy themes
At the 2024 AGM, shareholders approved a new remuneration policy with a vote of 95.6% in support for the resolution. We are not proposing
any material changes to the current policy but are seeking shareholder support for two minor amendments which are detailed below. The
amendments are proposed in light of the following:
1�
Since the existing policy was approved, the Investment Association has issued revised principles of remuneration which acknowledge the
competitive pressures facing UK listed businesses operating within a global talent market. As is evidenced by recent appointments to the
Executive Team, we consider that Rolls-Royce is participating in a global talent market and we need to ensure that we have flexibility to attract
and retain the right international leadership; and
2� Both Executive Directors are personally invested in Rolls-Royce through significant share interests which has created strong alignment with
shareholders. Tufan Erginbilgic and Helen McCabe have fully satisfied their shareholding requirement under the current policy. As at
31December 2024, Tufan Erginbilgic had achieved a shareholding interest of 2,468.7% of salary against a guideline of 400% of salary and
Helen McCabe had achieved a shareholding interest of 911.2% against a guideline of 300% of salary. The driver of this shareholding position
relative to salary has been the growth in shareholder value the Executive Team has created in recent years.
Changes to policy design
1. Tiered approach to annual incentive deferral linked to achievement of the shareholding guideline
An adjustment to the annual incentive deferral policy is proposed by introducing a tiered approach to mandatory deferral into shares, linked to
the achievement of the in-employment shareholding guideline.
Under the proposed policy, the current level of annual incentive deferral would remain at 50% of salary for Executive Directors who have not
achieved the shareholding guideline. If the Executive Director has exceeded their in-employment shareholding guideline but has not achieved
a level of double the shareholding guideline, the level of deferral into shares reduces from 50% to 25% of salary. Should the Executive Director
achieve double the shareholding guideline then the annual incentive would pay out fully in cash. There is no proposed change to the length of
the deferral period which will remain at three years.
Chief Executive
Proportion of annual
incentivepaid as cash
Proportion of annual
incentivepaid as shares
(deferred for 3 years)
Share interests are below 400% of salary 50% 50%
Share interests are between 400% to 800% of salary 75% 25%
Share interests are over 800% of salary 100% –
Chief Financial Officer
Proportion of annual
incentivepaid as cash
Proportion of annual
incentivepaid as shares
(deferred for 3 years)
Share interests are below 300% of salary 50% 50%
Share interests are between 300% to 600% of salary 75% 25%
Share interests are over 600% of salary 100% –
This tiered deferral is proposed to balance the need to encourage Executive Directors with limited shareholdings to build a material holding over
time, while acknowledging that mandatory annual incentive deferral may not significantly enhance shareholder alignment for those with
substantial existing shareholdings and, in fact, may inadvertently encourage Executive Directors to sell down shareholdings to realise cash.
Should shareholders approve the revised policy, this change will take effect for the annual bonus payable for the performance period ending
31December 2025, and thereafter.
2. Enhanced post-cessation shareholding requirements
We are proposing enhanced post-cessation shareholding requirements to strengthen protection for shareholders. This would require our
Executive Directors to hold the lower of their actual shareholding at leaving or 100% of the share ownership guideline for the full two years
post-cessation, as opposed to the current requirement to hold the lower of their actual shareholding at leaving or 100% of the share ownership
guideline for the first year following termination of employment and 50% for the second year. This proposal would align the Group’s policy with
the Investment Association’s recommendation.
Period
Chief Executive
(current)
Chief Executive
(proposed)
Chief Financial
Officer (current)
Chief Financial
Officer (proposed)
First year following termination of employment 400% of
base salary
400% of
base salary
300% of
base salary
300% of
base salary
Second year following termination of employment 200% of
base salary
400% of
base salary
150% of
base salary
300% of
base salary
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Remuneration policy
There are no further changes proposed to the policy.
No Executive Director or Executive Team member was present during discussion of his or her own remuneration package and they were not
involved in the final approval of the new remuneration policy design.
Consideration of shareholder feedback
During the policy review, we have consulted with our largest shareholders to provide context for the proposed minor adjustments to our policy.
We have been pleased that the feedback that we have received has been substantially positive with shareholders supporting the rationale for
the adjustments proposed.
Remuneration policy table
The table below sets out each element of the Executive Directors’ remuneration, which is subject to shareholder approval at the AGM to be held
in May 2025.
Base salary
Purpose and link
to strategy
We provide competitive salaries to attract and retain individuals of the highest calibre to develop and execute the
business strategy.
Operation
Salaries are reviewed annually but not necessarily increased. Decisions on salary are informed but not led by
reference to:
— companies of a similar size, complexity and international reach;
— size and scope of the role;
— skills and experience of the individual;
— market competitiveness of the broader remuneration package;
— performance of the Group and individual;
— wider market and economic conditions; and
— increases made across the Group.
The Committee has the flexibility to set the salary of a new hire at a discount to the market and to realign it in
subsequent years as the individual gains experience in the role. In exceptional circumstances, the Committee may
agree to pay above market levels to secure or retain an individual who is considered by the Committee to possess
significant and relevant experience that is critical to the delivery of the Group’s strategy.
No recovery or withholding applies.
Maximum opportunity There is no formal maximum. Any salary increases will be assessed annually and will not normally exceed average
increases for employees in other appropriate parts of the Group. Where the Committee considers it necessary or
appropriate, larger increases may be awarded in individual circumstances, including but not limited to: where there
is a significant change in the scale, scope or responsibility of a role; where the organisation has undergone
significant change; development within a role; and/or significant market movement.
Performance measures
Not applicable, although overall individual and business performance is considered when setting and reviewing
base salary.
Benefits
Purpose and link
to strategy
We provide competitive benefits suitable to attract and retain individuals of the right calibre to develop and execute
the business strategy and support wellbeing.
Operation
A range of benefits may be provided including, but not limited to, provision of a company car or car allowance;
financial planning and tax assistance; private medical insurance; life assurance; and other appropriate benefits at
the discretion of the Committee.
Relocation support or support for accommodation and travel may be offered to executives where necessary.
Executive Directors may participate in the Group’s all-employee share plans.
No recovery or withholding applies.
Maximum opportunity There is no formal maximum. The cost of benefits is not predetermined, reflecting the need to allow for increases
associated with the provision of benefits. Benefit costs are reviewed regularly to ensure they remain cost-effective.
Participation in any tax advantaged share schemes is capped at the same level as other participants which is
determined by the Group within the bounds of any applicable legislation which may change from time to time.
Performance measures Not applicable�
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REMUNERATION POLICY
Remuneration policy table continued
Retirement
Purpose and link
to strategy
We provide a competitive retirement savings plan suitable to attract and retain individuals of the right calibre to
develop and execute the business strategy.
Operation Executive Directors are offered membership of a retirement savings plan. A cash allowance may be payable in lieu
of contributions to the plan.
In certain jurisdictions it may be more appropriate to offer more bespoke retirement arrangements. The Committee
will give due consideration to local employment legislation, market practices and the cost of the plan.
Maximum opportunity
The maximum employer contribution for the Executive Directors is aligned with that made available to the wider
workforce, being 12% of base salary.
Performance measures Not applicable�
Annual incentive
Purpose and link
to strategy
We reward annual performance against stretching financial, strategic and individual targets aligned to delivery of
the Group’s strategy.
Mandatory deferral reinforces retention and enhances alignment with shareholders by encouraging longer-term
focus and sustainable performance.
Operation
The Group operates an annual incentive plan which may be based on a combination of financial, operational or
individual performance measures aligned to the Group’s strategy.
At least half the annual incentive awarded in any year will be deferred into shares for Executive Directors who have
not achieved the shareholding guideline. If the Executive Director has exceeded their in-employment shareholding
guideline, but has not achieved a level of double the shareholding guideline, the level of annual incentive deferral
into shares reduces from 50% to 25% of salary. Should the Executive Director achieve double the shareholding
guideline then the annual incentive would pay out fully in cash. The deferral period will normally be for a period of
three years. The Committee has discretion to permit a dividend equivalent amount to accrue on shares delivered
under the deferred annual incentive arrangement. Vesting of deferred shares is dependent on continued
employment or good leaver status, as described in the notes to the policy table on page 95.
The Committee retains the discretion, acting fairly and reasonably, to alter the annual incentive outcome in light of
the underlying performance of the Group, taking account of any factors it considers relevant. Clawback will apply
to cash incentive paid and to any deferred shares within the three-year deferral period.
Maximum opportunity The maximum annual incentive opportunity for the Executive Directors is 200% of base salary.
Performance measures
The incentive may be based on a combination of financial, operational and individual measures which the
Committee will review on an annual basis. The precise allocation between financial and non-financial measures, as
well as weightings within these metrics, will depend on the strategic focus of the Group from year-to-year. At least
50% of the performance measures will be financial.
Up to 25% of the maximum incentive opportunity is paid for achieving a threshold level of performance and the
maximum incentive is paid for delivering stretching levels of business performance and outstanding personal
performance. No incentive is payable if threshold levels of performance are not achieved.
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REMUNERATION POLICY
Remuneration policy table continued
Long-term incentive plan
Purpose and link
to strategy
We incentivise the execution of strategy and seek to drive long-term value creation and alignment with long-term
returns toshareholders.
Operation
Awards under the LTIP are conditional rights to receive shares subject to continued employment or good leaver
status and the achievement of any relevant performance conditions.
Awards are subject to performance targets normally assessed over three financial years. The number of shares will
be adjusted to reflect performance on the third anniversary of the grant. The shares will vest on the five-year
anniversary of the grant, after a two-year holding period. The Committee has discretion to set different
performance periods if it considers appropriate.
The Committee shall determine the extent to which the performance measures have been met. The Committee may
make adjustments to performance targets if an event occurs or circumstances arise which causes the Committee to
determine that performance conditions are no longer appropriate. The performance targets will be at least as
challenging as the ones originally set.
The Committee has discretion to permit a dividend equivalent amount to accrue on shares during the holding period
under the LTIP. Awards under the LTIP are subject to the malus and clawback policy which takes account of
exceptional and adverse circumstances as described in the notes to the policy table (see page 95).
The Committee has the ability to exercise discretion in adjusting the formulaic outcome of incentives to ensure the
outcome is reflective of the performance of the Group and the individual over the performance period.
Maximum opportunity The maximum long-term incentive award for Executive Directors is 375% of base salary.
Performance measures
The Committee determines performance measures each year and will ensure that the targets are stretching and
support value creation for shareholders while remaining motivational for management. The precise measures and
weightings will be determined by the Committee on an annual basis and will depend on the strategic focus of the
Group year-to-year. A minimum of 90% of measures will be financial.
Measures for the 2024 award included: free cash flow (30%); operating margin % (30%); relative total shareholder
return (30%); and return on capital % (10%). Return on capital will be replaced by Scope 1 + 2 greenhouse gas
emission targets for the LTIPs awarded from 2025. For each performance element, achievement of the threshold
performance level will result in no more than 20% of the maximum award paying out. For achievement of the
maximum performance level, 100% of the maximum pays out. Normally, there is straight-line vesting between these
points. No amount is payable if threshold levels of performance are not achieved.
Share ownership
Purpose and link
to strategy
Ensures alignment with shareholders’ interests.
Operation
Executive Directors are required to build a holding of beneficially-owned shares equivalent in value to a
percentage of their base salary. For the Chief Executive this requirement is 400% of salary and for the Chief
Financial Officer and any other Executive Director this requirement is 300% of base salary. Where requirements
are not met, Executive Directors must retain at least one half of after-tax shares released from the legacy single
incentive plan, the deferred bonus arrangements and the LTIP until this requirement is met.
Post-cessation, Executive Directors are normally required to retain the lower of the shareholding requirement or
their actual shareholding at leaving date for 24 months.
Maximum opportunity Not applicable�
Performance measures Not applicable�
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Remuneration policy table continued
The table below sets out the main elements of Non-Executive Directors’ remuneration.
Fees
Purpose and link
to strategy
To reward individuals for fulfilling their role and attract individuals of the skills and calibre required.
Operation
The Committee makes recommendations to the Board on the Chair’s remuneration. The Chair and the Executive
Directors determine the remuneration of the Non-Executive Directors.
The fees for Non-Executive Directors are set at a level which is considered appropriate to attract individuals with
the necessary skills and experience. Fees are periodically reviewed to ensure they remain appropriate in the
context of: the role scope; company size, complexity and global breadth; and wider market conditions.
The Chair is normally paid a single fee which reflects the commitment, demands and responsibility of the role and
may be paid in either cash or shares or a combination of both.
Other Non-Executive Directors are normally paid a base fee and additional fees for Board Committee chairmanship
and membership responsibilities. The Senior Independent Director and Employee Champions receive an additional
fee for these additional duties. Non-Executive Director fees may be paid in either cash or shares or a combination
of both.
Non-Executive Directors are not eligible to participate in the annual bonus or LTIP.
Maximum opportunity
The current limit on the aggregate fees is set out in the Articles of Association which may be amended by a
shareholder vote.
Performance measures Not applicable�
Benefits
Purpose and link
to strategy
To reimburse Non-Executive Directors for reasonable expenses incurred fulfilling the duties of their role.
Operation Reimbursement for expenses that may include, but are not limited to, travel, hotel and subsistence incurred when
attending meetings. The Group may provide support with tax matters for Non-Executive Directors based outside
the UK. The Chair may have occasional use of chauffeur services. The Group may pay tax on benefits provided to
Non-Executive Directors.
Maximum opportunity Not applicable�
Performance measures Not applicable�
Remuneration policy – worked examples for 2025
The tables below provide an illustration of what could be received by each Executive Director for the 2025 performance year, assuming minimum,
on-target and maximum levels of performance. The maximum with share price increase scenario shows the impact of a 50% share price growth
on the LTIP shares.
Tufan Erginbilgic
Chief Executive £000
Helen McCabe
Chief Financial Officer £000
100%
26% 23%
17% 29% 54%
13% 23% 43% 21%
51%
£1,566
£6,024
£9,453
£12,024
Minimum
On-target
Maximum
Maximum
assuming
50% increase
in share price
100%
30% 26%
20% 34% 47%
16% 27% 38% 19%
43%
£921
£3,029
£4,700
£5,794
Minimum
On-target
Maximum
Maximum
assuming
50% increase
in share price
Fixed pay Annual incentive LTIP Share price increase
Minimum Fixed remuneration (salary, retirement, benefits)
On-target
Fixed remuneration, on-target annual incentive (equivalent to 100% of salary for both the Chief Executive and Chief Financial
Officer) and 60% vesting of the LTIP (equivalent to 225% for the Chief Executive and 165% for the Chief Financial Officer)
Maximum Fixed remuneration, maximum annual incentive (equivalent to 200% of salary for both the Chief Executive and Chief Financial
Officer) and 100% vesting of the LTIP (equivalent to 375% for the Chief Executive and 275% for the Chief Financial Officer)
Maximum assuming 50%
increase in share price
All elements are the same as the maximum but assumes a 50% increase in the share price from the date that the shares are
granted
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Alignment with shareholders
The table below illustrates how the policy aligns the interests of Executive Directors with the long-term interests of shareholders. A significant
portion of the total compensation package will be delivered in shares. 50% of the annual bonus will be deferred into shares for a period of
three years and the long-term incentive plan will have a three-year performance period followed by a two-year holding period.
Year 5Year 4Year 3Year 2Year 1
One year performance
period. 50% in cash
50% in shares deferred for three years.
1
No further performance conditions attached to the award
Three-year performance period Two-year holding period
Annual bonus
LTIP
Fixed pay
(salary and benefits)
1 Deferral of 50% of the annual bonus will apply unless an Executive Director has satisfied at least their minimum shareholding requirement. 25% of the annual bonus will be deferred if the
shareholding requirement is met in full. No deferral will apply where an Executive Director holds over 200% of their shareholding requirement
Notes to the policy table
Performance measure selection and setting
The annual bonus measures are determined annually to reflect matters which the Committee considers to be areas of specific focus for the
Executive Directors over the short term. The Committee believes that using a number of measures provides a balanced incentive. The measures
themselves are aligned to, and are designed to support the delivery of, the Group’s strategic objectives.
The Committee sets performance conditions relating to the LTIP awards which are designed to align the interests of management and
shareholders, incentivise management to deliver the Group’s strategic objectives and reward performance over the longer term.
Targets for the annual bonus and performance measures for the LTIP awards are reviewed before the awards are made, based on a number of
internal and external reference points, including strategic plans and analyst consensus to reflect market expectations where available. The
Committee intends that the targets will be stretching and will align management’s interests with those of shareholders. The measurement of
performance is at the Committee’s discretion, which may include appropriate adjustments to financial or non-financial elements and/or
consideration of overall performance in the round. Adjustments may be either upwards or downwards.
In exceptional circumstances, performance conditions may also be replaced or varied if an event occurs or circumstances arise which cause the
Committee to determine that the performance conditions have ceased to be appropriate.
Malus and clawback provisions
A malus provision applies to awards granted under the LTIP and to unvested awards under the Incentive Plan which were granted under the
previous policy, to new awards granted under the proposed policy and the mandatory bonus deferral arrangements. This would allow the
Committee, in its absolute discretion, to determine at any time prior to the vesting of an award, to reduce or cancel the award in certain
circumstances, including:
— a material misstatement of audited results;
— serious financial irregularity;
— material financial downturn or an event causing a material negative impact on the value of the Group;
— material failure of risk management;
— a serious breach of Our Code;
— individual misconduct or actions that materially damage the Group;
— acting in a way which has materially damaged the reputation of the Group or any member of the Group;
— a breach of or inadequate response to a significant HSE or other environmental issue;
— materially incorrect calculation of an award; and/or
—
failure to adequately manage/supervise others which in turn led to one of the above triggers and/or materially incorrect calculation of
an award.
A clawback provision applies to vested awards granted under the LTIP, the mandatory bonus deferral arrangements and deferred shares granted
under the Incentive Plan, as well as annual bonuses paid previously. This would allow the Committee, in its absolute discretion, to claw back from
individuals some or all of the vested awards or paid bonus in the circumstances described above.
The malus provisions apply from the date of grant until the settlement date. The clawback period extends for a further three years, up to six years,
from the date of grant.
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Policy on new appointments
The Board will appoint new Executive Directors with a reward package recommended by the Committee that is in line with the remuneration
policy. Base salary may be set at a higher or lower level than the previous incumbent. The maximum incentive opportunity on appointment will
be no higher than the maximum of the shareholder approved remuneration policy, which is 200% of the annual bonus and 375% for the LTIP.
Remuneration forfeited on resignation from a previous employer may be compensated. This will be considered on a case-by-case basis and may
comprise cash or shares. In general:
— if such remuneration was in the form of shares, compensation will be in the Company’s shares;
— if remuneration was subject to achievement of performance conditions, compensation will, where possible, be subject to performance (either
Rolls-Royce performance conditions or actual/forecast performance outturns from the previous company); and
— the timing of any compensation will, where practicable, match the vesting schedule of the remuneration forfeited.
Legacy terms for internal appointments may be honoured, including any outstanding incentive awards. If an Executive Director is appointed
following a merger or an acquisition of a company by Rolls-Royce, legacy terms and conditions may be honoured.
Where an Executive Director is required to relocate from their home location to take up their role, the Committee may provide reasonable
relocation assistance and other allowances including expatriate assistance. Global relocation support and any associated costs or benefits
(including but not limited to housing, school fees, tax preparation and filing assistance and flights back to the home country) may also be provided
if business needs require it. Should the Executive’s employment be terminated without cause by the Group, repatriation costs may be met by
the Group.
The Company may agree to pay the reasonable legal fees incurred by a new appointee for advice received in relation to their contract of
employment or service agreement.
Wider workforce considerations
The Committee has responsibility for overseeing pay arrangements of all our people and reviews broader workforce policies and practices in
order to support decisions on executive pay. When setting remuneration for Executive Directors and senior management, the Committee
carefully considers wider remuneration across the Group, including salary increases, bonus awards, share plan participation and pay ratios
between Executive Directors and employees.
Paying our people fairly relative to their role, skills, experience and contribution is central to our approach to remuneration. The Group’s reward
framework and policies fundamentally support this. The remuneration policy for senior executives and other employees is determined based on
similar principles to Executive Directors. For roles below the Board, the exact structure and balance are tailored based on various factors
including the scale, scope or responsibility of the role, development within the role and local market practice.
We drive alignment through the organisation with our incentives and our all-employee share plans. The annual bonus plan metrics cascade from
Executive Directors to the vast majority of our wider workforce and our LTIP plan cascades to a large proportion of our global management
population as well as our key talent groups (approximately 12% of the global workforce). This drives alignment of organisational and individual
objectives, ensuring that the wider workforce is driving the key metrics which will help us to continue to deliver a step change in our performance
and enable future strategy.
The Committee is supportive of providing all employees with the opportunity to become shareholders, again aligning the interests of the wider
workforce, the Executive Directors and our shareholders. In 2024, we implemented a new all-employee share plan, moving from a ShareSave
plan which is cash settled outside of the UK, to a global purchase plan where the Company has the opportunity to match personal investment
up to a certain value each month. Our new plan enables share ownership from the outset, driving engagement with both business and share
price performance and reinforcing the message that we all benefit if the business succeeds.
Input on the 2024 remuneration policy was sought from employee groups at all levels within the organisation, including the European works
council and representatives of our global management population. Input was received by both face-to-face and virtual meetings. We shared
how reward packages for Executive Directors are typically structured and received input on appropriate performance measures to determine
pay outcomes and how incentive structures should cascade to the wider organisation.
Share plans
The Committee retains a number of discretions consistent with the relevant share plan rules. For example, in the event of any variation in the
share capital of the Company, a demerger, special dividend, distribution or any other transaction which will materially affect the value of shares,
the Committee may make an adjustment to the number or class of shares subject to awards.
The treatment of leavers in all of our share plans are covered by the respective plan rules. Change of control provisions in respect of employee
share plans are set out overleaf.
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Service contracts
A summary of the key elements of the Executive Directors’ service agreements as they relate to remuneration are as follows:
Contract duration No fixed term.
Notice period 12 months’ notice both to and from the Executive Director.
Payment in lieu of
notice (PILON)
Employment can be terminated with immediate effect by undertaking to make a PILON comprising base salary,
retirement contributions or allowance, car allowance and a sum representing the cost of private medical insurance.
The Company may elect to provide private medical insurance and/or to allow an Executive Director to retain his or
her company car through the notice period, or the balance of it, as an alternative to making cash payments.
The Company is entitled to make the PILON on a phased basis, subject to mitigation, so that any outstanding payment(s)
would be reduced or stopped if alternative employment is obtained.
Change of control If there is a change of control of the Company or other specified Company events, the relevant plan rules contain
details on the impact for awards. In most cases, this is likely to result in the awards vesting early but subject to still
meeting any applicable performance conditions, as decided by the Committee, who may have regard to projected
performance over the whole period, and applying time pro-rating. Alternatively, awards may be exchanged for new
awards over shares in the acquiring company in some circumstances.
Other entitlements
on termination
There is no contractual entitlement to notice or any other payments in respect of the period after cessation of
employment if the individual is summarily dismissed.
Please see payments for loss of office below for a summary of other entitlements which may be due upon termination
and which relate to remuneration.
Payments for loss of office
The Company’s policy on payments for loss of office is as follows:
The relevant share plan rules govern the treatment of in-flight share awards when an Executive Director leaves. The table below summarises
leaver provisions for good leavers.
Good leavers are those who have left the Group due to death: ill-health, injury or disability; redundancy; retirement with the agreement of the
Group; the sale or transfer of the business in which the Executive Director is employed to a Company which is not a member of the Group; the
participant’s employing company ceasing to be a member of the Group; and other such circumstances approved by the Committee.
All awards will normally lapse if an individual leaves the Company for any reason other than a good leaver reason.
The Committee will not exercise discretion where a participant is dismissed for gross misconduct.
Component Approach
Annual incentive Individuals who are determined by the Committee to be good leavers may be considered for an annual incentive in
relation to the year in which their active employment ceases.
When deciding whether to exercise its discretion to allow a payment in respect of an annual incentive (and, if so, its
amount and the terms on which it may be paid), the Committee will consider such factors as it considers to be
appropriate, including performance against targets, the performance of the individual and the Group in general and
the circumstances in which the individual is leaving office. Any payment to a good leaver in respect of an annual
bonus will typically be made at the same time as annual bonuses are paid to other employees. Clawback will continue
to apply to the cash element of any payment made in respect of an annual bonus. The Committee will determine if it
is appropriate in the particular circumstances to apply bonus deferral.
Deferred shares allocated in part satisfaction of annual incentives shall vest in full on the vesting date if an individual
is determined by the Committee to be a good leaver unless the Committee, in its absolute discretion, determines
that an award will vest on such earlier date on or following the date of such cessation as it may specify. Otherwise,
they will lapse on exit.
Long-term
incentive plan
If an individual is determined by the Committee to be a good leaver, LTIP awards will normally continue to vest on
the original vesting date and any holding period will normally still apply (subject to the satisfaction of performance
conditions and unless the Committee exercised its discretion to waive time pro-rating, which will apply to reflect the
period worked). If an individual leaves during the holding period for any reason (except summary dismissal) the award
will not lapse or be pro-rated for time but the holding period will normally remain in force.
SIP and SAYE
schemes
The Executive Directors are subject to the same leaver provisions as all other participants, as prescribed by the rules
of the relevant scheme or plan.
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Legacy commitments
Any remuneration payments and/or payments for loss of office made under legacy arrangements prior to the approval of the remuneration
policy may be paid out subject to the terms of the remuneration policy in place at the time they were agreed. For these purposes, payments
include satisfying awards of variable remuneration and, in relation to an award over shares, the terms of the payment will be agreed at the time
the award is granted. Unvested incentive plan awards issued under the previous policy, along with any salary that was deferred into shares, will
vest on the usual vesting dates, consistent with the terms of that policy. LTIPs granted under previous policies remain in place, consistent with
the terms of that policy.
Minor amendments
The Committee may make minor amendments to the policy (for regulatory, exchange control, tax or administrative purposes or to take account
of a change in legislation) without obtaining shareholder approval.
Provision 40, section 41 disclosures
When developing the proposed remuneration policy and considering its implementation, the Committee was mindful of the Code and considers
that the executive remuneration framework appropriately addresses the following factors:
Clarity We provide open and transparent disclosures regarding our remuneration arrangements for Executive Directors.
We have explained the changes to our proposed remuneration policy in a way that highlights alignment to both our
vision and strategy as well as the provisions of the Code.
Simplicity
Remuneration arrangements for our Executive Directors and our wider workforce are simple in nature and well
understood by both participants and shareholders.
Predictability
Our remuneration policy contains details of maximum opportunity levels for each component of pay, with actual
incentive outcomes varying depending on the level of performance achieved against specific measures.
Proportionality, risk and
alignment to culture
The metrics used to measure performance for incentive awards drive behaviours that are closely aligned to our vision
and strategy. In particular, our variable pay arrangements continue to focus on delivering an unprecedented level
of transformation.
The Committee considers that our variable pay structures do not encourage inappropriate risk-taking.
The incentives are subject to the achievement of stretching performance targets and the Committee’s holistic
assessment of performance that can result in the application of discretion.
The use of holding periods and our shareholding requirements, including after leaving employment with the Group,
provide a clear link to the ongoing performance of the business and, therefore, alignment with shareholders.
Malus and clawback provisions also apply to the Incentive Plans.
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Implementation of remuneration policy for 2025
Base salary
A salary increase of 5% for the Chief Executive and 5% for the Chief Financial Officer is proposed. This takes into
account their performance and the wider market for executive roles in multinational corporations of similar size and
complexity. Median base pay increases for the wider UK workforce will be 5.5%.
Benefits
There will be no change to our approach to benefits in 2025, which includes car allowance, financial planning
assistance, insurances and other benefits.
Retirement
The cash allowance for Tufan Erginbilgic and Helen McCabe is 12% of salary, in line with the rate made available to
the wider UK workforce.
Annual incentive
In line with the proposed policy, the annual incentive for 2025 will be based on 80% Group performance and 20%
individual performance, with a maximum opportunity for both Tufan Erginbilgic and Helen McCabe of 200% of
salary. Subject to the amendments proposed for shareholder approval at the 2025 AGM, 50% of any incentive
payable would be delivered in shares which will vest after three years.
The performance metrics have been reviewed and updated for 2025 to reflect key strategic priorities for the Group.
The metrics and associated weightings will be:
Metric Weighting Link to strategy
Free cash flow 40% A fundamental KPI which helps to measure the level of value we are creating
for our shareholders. It enables the business to fund growth, reduce debt
and make shareholder distributions.
Operating profit 30%
Indicates how the effect of growing revenue and control of our costs delivers
value for shareholders.
Strategic objectives
(split 5% customer
and 15% operating
profit margin)
20%
Incentivises the delivery of key annual objectives linked to the transformation.
Customer delivery and continuing focus on margin improvement are both
critical to increasing the quality and sustainability of financial returns.
Safety 5% Safety is the Group’s licence to operate and is the number one priority for
all of our people.
People 5%
Employee engagement is an objective way of assessing how engaged our
employees are with the business and its leaders.
Where targets are set with a one-year performance period and are considered to be commercially sensitive, they
will be disclosed following the end of the performance period, along with performance against targets and the details
and context for the assessment of performance.
The Committee may make appropriate adjustments and use judgement in assessing performance outcomes. It retains
its overriding ability to apply discretion to adjust any formulaic outcome to ensure that the final outcome is fair and
justified in the context of the overall performance of the business.
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Implementation of remuneration policy for 2025 continued
Long-term incentive plan
The long-term incentive has a three-year performance period and a two-year holding period, with a maximum
opportunity of 375% of salary for Tufan Erginbilgic and 275% for Helen McCabe.
For each performance element, achievement of threshold will result in no more than 20% of the maximum pay out
and no amount payable for an element if the threshold is not met. Achievement of the maximum performance would
result in 100% of the maximum award paying out.
Metrics Weighting
Threshold
1
(20% vesting)
Maximum
1
(100% vesting) Link to strategy
Free cash flow (three-year cumulative) 30% £9,234m £10,434m A fundamental KPI which helps to
measure the level of value we are
creating for our shareholders. It
enables the business to fund growth,
reduce debt and make shareholder
distributions.
Operating margin % (average over
three-year performance period)
30% 13.8% 15.5% Reflects the quality of performance
and will encourage continued cost
focus across the Group.
Relative TSR (50% versus the
FTSE 100 constituents and 50%
versus the S&P global industrials
index constituents)
30% Median Upper
quartile
Closely aligns executive pay outcomes
with the shareholder experience, a
measure favoured by a large
proportion of our shareholder base.
Progress against our science
aligned target to reduce Scope 1 + 2
greenhouse gas emissions
(1 January 2025 to 31 December 2027
total cumulative emissions)
10% 925 kTCO
2
e 757 kTCO
2
e Aligns executive pay outcomes with
our commitment to reduce Scope
1 + 2 greenhouse gas emissions by
46% by 2030 (against a 2019 baseline).
1 Outturn between threshold and maximum will be calculated on a straight line sliding scale
The Committee may make appropriate adjustments and use judgement in assessing performance outcomes. It retains
its overriding ability to apply discretion to adjust any formulaic outcome to ensure that the final outcome is fair and
justified in the context of the overall performance of the business.
The long-term incentive opportunities and time horizons will operate in accordance with the remuneration policy.
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Executive Directors’ remuneration
The following pages show how we have applied our remuneration policy during 2024 and disclose all elements of remuneration received by our
Executive Directors.
Executive Directors’ single figure of remuneration (audited)
Tufan Erginbilgic Helen McCabe
1
Panos Kakoullis
1
2024
£000
2023
£000
2024
£000
2023
£000
2024
£000
2023
£000
Salary (a) 1,136 875 690 242 – 395
Salary as deferred shares 160 375 62 60 – 84
Benefits (b) 105 29 29 13 – 16
Annual Incentive Plan (c) 2,556 4,680 1,483 908 – 1,430
Long-Term Incentive Plan – – – – – –
Retirement Allowance (d) 156 150 90 36 – 57
Previous employer buyouts (e) – 7,500 – 2,537 – –
Total remuneration 4,113 13,609 2,354 3,796 – 1,982
Total fixed remuneration 1,557 1,429 871 465 – 552
Total variable remuneration
2,556 12,180 1,483 3,331 – 1,430
1 Helen McCabe was appointed on 1 August 2023. Panos Kakoullis stepped down from the Board on 4 August 2023
a) Salary (audited)
The Company provides suitable competitive salaries to attract and retain individuals of the right calibre to develop and execute the business
strategy.
Discrepancies between single figure of remuneration salary and base salary:
— from the date of their appointments until 31 May 2024, 30% of Tufan Erginbilgic’s salary and 20% of Helen McCabe’s salary was deferred into
shares for two years. From June 2021, 20% of Panos Kakoullis’ salary was deferred into shares for two years. The shares are not subject to
performance conditions nor conditional on continued employment. However, if the Executive Director is summarily dismissed as a result of
their actions or the result of actions of others acting under their instruction, the shares will immediately lapse.
In February 2025, the Committee reviewed the base salaries of Tufan Erginbilgic and Helen McCabe and agreed an increase of 5%. This reflects
prevailing wage inflation for executive roles.
Base salary as at
1 March 2025
Base salary as at
1 March 2024
Tufan Erginbilgic £1,371,563 £1,306,250
Helen McCabe £795,506 £757,625
b) Benefits (audited)
Benefits are provided to ensure that remuneration packages remain sufficiently competitive to attract and retain individuals of the right calibre
to develop and execute the business strategy and to enable them to devote themselves fully to their roles. The value of all taxable benefits paid
to Executive Directors is shown below.
Car or car
allowance
£000
Medical
insurance
£000
Travel and
subsistence
£000
Tax
benefit
£000
Total
£000
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
Tufan Erginbilgic 15 15 64 – 26 14 – – 105 29
Helen McCabe 15 6 2 1 11 6 – – 28 13
Panos Kakoullis – 10 – 1 – 4 – 1 – 16
c) Annual Incentive Plan (audited)
The Annual Incentive Plan is designed to incentivise the execution of the business strategy, delivery of financial targets and the achievement of
personal objectives. Incentive awards are made in March each year, following the prior calendar year performance period. Half of the incentive
is deferred into shares for three years and includes the right to receive an amount equal in value to any shareholder distributions issued during
the deferral period. The shares are conditional on continued employment but do not have further performance conditions. The annual maximum
for the Chief Executive and the Chief Financial Officer is 200% of base salary.
— 80% of the award is based on Group performance; and
— 20% of the award is based on individual performance.
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2024 remuneration report
The Committee reviewed the 2024 outturn against the performance measures.
2024 annual incentive performance outturns
Weighting
Threshold
(50% outturn)
1
Target
(100%)
Maximum
(200%)
1
Performance
pre-adjustments
Performance
post-adjustments
% of
target
% of
maximum
Annual targets:
Free cash flow
2
40% 1,600 1,800 2,000 2,452 2,468 200% 100%
Actual £2,468m
Operating profit
3
20% 1,600 1,800 2,050 2,501 2,565 200% 100%
Actual £2,565m
People
4
10%
– Our Voices survey 5% 75% n/a 81% 125% 125% 125% 62.5%
Actual 78%
– Safety index score 2.5% 92% 94% 96% 200% 200% 200% 100%
Actual 96%
– Total Reported Injuries 2.5% 0.33% 0.3% 0.27% 133% 133% 133% 66.5%
0.29%
Key strategic objectives
5
30%
– Operating cost
6
15% 6,769 6,619 6,469 6,576 6,368 200% 100%
Actual £6,368m
– Operating profit margin
3
15% 10.3% 10.7% 12.3% 13.8% 14.2% 200% 100%
Actual 14.2%
Outcome 194.6% 97.3%
1 Payout between threshold and target and target and maximum is calculated on a straight line sliding scale
2 Free cash flow has been adjusted to account for FX changes in order to ensure that targets and assessments are measured on a like-for-like basis
3 Operating profit has been adjusted to account for FX changes (see footnote 2)
4 The people objective was weighted 50% to the Gallup engagement score and 50% to safety measures
5 Key strategic objectives aligned to the broader transformation objectives and were weighted 50% to operating cost and 50% to operating profit margin
6 Operating cost has been adjusted to reflect FX changes (see footnote 2) and discretion has been applied to neutralise the impact of costs directly linked to fully funded customer business,
above target incentive accruals and unbudgeted gains from employee share plans
The Committee considered adjustments to targets resulting from events which were not anticipated at the time the targets were set, to ensure
that targets and assessments are measured on a like-for-like basis. The details of the adjustments are included in the footnotes above.
As a result of these adjustments, the incentive plan outturns are 194.6% of target and 97.3% of maximum.
Tufan Erginbilgic Helen McCabe
Group performance (% of maximum) – weighting 80% 97.3% 97.3%
Individual performance (% of maximum) – weighting 20% 100% 100%
Actual award – % of maximum 97.8% 97.8%
Actual award – % of salary 195.7% 195.7%
Actual award – £000 £2,556 £1,483
Half of the annual incentive award will be delivered in deferred shares for three years which will vest subject to continued employment.
No further performance conditions are attached.
Definitions used for performance measures:
Operating profit – adjusted Group underlying operating profit before tax for 2024.
Free cash flow – adjusted Group free cash flow.
Operating cost – adjusted Group operating costs (which exclude direct procurement of parts and components).
Operating profit margin – adjusted Group underlying operating profit margin.
People – weighted 50% to the Our Voices survey and 50% to internal safety measures (the safety index and total reported injury rates). 2024 was
the first year our people used the Our Voices survey, which enables peer comparisons against a global manufacturing peer group. The safety
index is an established internal KPI used by all divisions and was included for the first time as an incentive metric for 2023.
102
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
2024 REMUNERATION REPORT
Individual performance
Subject to achievement of a minimum financial threshold, the Executive Directors have 20% of their incentive based on the achievement of their
personal objectives. The financial threshold for 2024 was to deliver a Group free cash flow of a minimum of £900m. Personal performance
objectives are set at the beginning of the year and are aligned with the Group’s priorities.
Objective Measure Assessment against objective
Chief Executive:
Tufan Erginbilgic
Safety
Ensure focus on safety of our people,
measured by ensuring total reportable
injuries rate remains below 0.3, and
maintaining world-class performance of
product safety.
Safety culture consistently reinforced at every level in the organisation
and embedded in the new behaviours. Our Voices employee listening
results demonstrated safety is understood by all layers of the
organisation as our number one priority. Total reportable injuries rate
reduced year-on-year to 0.29. Strong performance maintained in respect
of product-related safety management.
Financials
Deliver free cash flow of £1,800m; deliver
operating profit of £1,800m; deliver
operating margin of 10.7%; and deliver
operating cost of no more than £6,619m.
Significant and sustainable progress made on all KPIs enabling updated
mid-term guidance to be delivered.
Strategic milestones
Embed a multi-year transformation
programme that will eliminate aircraft on
ground and deliver a step change in original
equipment performance and commercial
capability across the Group. Embed
third-party cost savings to deliver £1bn of
savings over the mid-term. Secure strategic
partnership for Rolls-Royce SMR.
Zero-based budgeting having significant impact across the Group, with
targeted opportunities for 2025. Significant progress on onerous
contract renegotiation and commercial optimisation.
CEZ deal executed for Rolls-Royce SMR.
Plan developed and in progress to address aircraft on ground and
original equipment performance in 2025.
People Implement the new organisational design to
deliver £200m of annualised savings by the
end of 2025. Deliver reduced layers,
increased spans of control and retain key
diverse talent. Maintain strong engagement
scores measured by Our Voices in 2024.
New organisational design went live on 1 June and is on track to deliver
targeted savings with improved spans and layers.
Overall personal performance assessment: 200%
Chief Financial Officer:
Helen McCabe
Safety Continue to build a culture that puts safety
at the heart of everything we do. Ensure
robust compliance and controls environment.
Internal controls and compliance processes and culture strengthened
across the Group.
Consistent and effective advocate for safety culture.
Financials
Deliver free cash flow of £1,800m; deliver
operating profit of £1,800m; deliver
operating margin of 10.7%; and deliver
operating cost of no more than £6,619m.
Significant out performance across all financial KPIs enabling updated
mid-term guidance to be delivered. Improved quality of delivery with:
a) working capital targets met; b) total cash costs/gross margin ratio of
0.47 (2022: 0.8 and 2023: 0.59); and c) efficiency and simplification
delivery and significant progress on procurement third-party costs
delivery.
Net cash/EBITDA X: 0.1 significant improvement year-on-year.
Strategic milestones Achieve investment grade credit rating with
all three agencies; embed zero-based
budgeting across the Group; reset and
strengthen performance management
processes throughout the Group; and
develop and move to implement IT & Digital
and Group Business Services (GBS)
strategies.
Investment grade ratings achieved with all three credit rating agencies,
with positive outlook maintained. Capital frame structured to enable
shareholder payments to resume.
New performance management processes embedded throughout the
Group. Zero-based budgeting having significant impact with targeted
opportunities for 2025.
IT & Digital and GBS strategies defined and moving to implementation.
People
Implement new organisational design in
Finance, GBS, IT & Digital. Strengthen talent
pipeline for critical roles.
New organisational design implemented, including refreshed finance
leadership team.
Overall personal performance assessment: 200%
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
2024 REMUNERATION REPORT
d) Retirement (audited)
Executive Directors are offered membership of a defined contribution plan with a maximum employer contribution of 12% of salary (or cash
allowance of equivalent value). This aligns to the average rate for the UK workforce.
In 2024, Tufan Erginbilgic and Helen McCabe received a cash allowance in lieu of employer contributions.
e) Compensation for remuneration forfeited from previous employment (audited)
Chief Financial Officer
As disclosed in the previous report, Helen McCabe has been compensated for remuneration forfeited from previous employment. This included
452,953 shares which vested in February 2024 and a cash payment of £113,750 in March 2024.
Malus and clawback
Awards to compensate for remuneration forfeited from previous employment for both Tufan Erginbilgic and Helen McCabe are subject to the
Rolls-Royce malus and clawback policy.
Payments to past directors (audited)
Jasmin Staiblin stepped down as a Non-Executive Director from the Board on 13 May 2021. Jasmin was appointed as a member of the supervisory
board of Rolls-Royce Power Systems AG on 10 June 2021 and as chair of their supervisory board, executive committee, audit committee and
mediation committee on 11 June 2021. Payments of £259,905 have been made to Jasmin in 2024 in relation to her appointment (2023: £270,948).
No other payments have been made to past directors during the year.
Payments for loss of office (audited)
It was announced on 31 March 2023 that Panos Kakoullis would leave the business. He stepped down from the Board on 4 August 2023 and left
the Group on 31 August 2023. The Committee agreed that Panos would receive a payment in lieu of notice for the seven unworked months of
his 12-month notice period, reflecting base pay, a cash allowance in lieu of employer contributions to a defined contribution plan and the cost
of providing benefits. Apay in lieu of notice of £483,221 was, therefore, paid to Panos on 31 August 2023. Panos was deemed a good leaver in
respect of his unvested incentive plan awards from 2021 and 2022, all of which were delivered in shares in March 2022 and March 2023, and
which will vest in accordance with the original vesting schedule between March 2025 and March 2027.
Executive Directors’ shareholdings and share interests
Executive Directors’ share interests (audited)
The Directors and their connected persons hold the following interests in the ordinary shares of the Company:
Ordinary shares owned
outright
Conditional shares not
subject toperformance
conditions
(salary as deferred shares)
Conditional shares not
subject toperformance
conditions
Conditional shares
subject to performance
conditions
Shares subject to
purchase plan
(Share Purchase Plan)
27 February
2025
31 December
2024
27 February
2025
31 December
2024
27 February
2025
31 December
2024
27 February
2025
31 December
2024
27 February
2025
31 December
2024
Tufan Erginbilgic 14,568 – 232,047 259,584 9,534,752 9,534,752 1,129,193 1,129,193 – –
Helen McCabe 239,638 239,638 42,801 42,801 1,145,243 1,145,243 697,652 697,652 416 365
Executive Directors’ share awards (audited)
The following sets out details of share awards that were granted, outstanding and vested during the year. See above for compensation for
remuneration forfeited from previous employment in respect of the LTIP grants made during 2023 for Tufan Erginbilgic and Helen McCabe.
Tufan Erginbilgic
Balance at
31 December
2023
Granted
during
the year
Vested
during
the year
Lapsed
during
the year
Balance at
31 December
2024
Date of
grant
Market price
at date of
grant (p)
Date of
vest/lapse
Market price
at date of
vest/lapse (p)
Face value
of award
(£000)
LTIP (buyout)
1
4,128,138 – – – 4,128,138 08/03/2023 90�84 08/03/2027 n/a 3,750
LTIP (buyout)
1
4,128,138 – – – 4,128,138 08/03/2023 90�84 08/03/2028 n/a 3,750
2024 LTIP
2
– 1,129,193 – – 1,129,193 28/05/2024 433�80 24/05/2029 n/a 4,898
Incentive Plan
1
– 511,390 – – 511,390 01/03/2024 366�10 01/03/2027 n/a 1,872
Incentive Plan
1
– 767,086 – – 767,086 01/03/2024 366�10 01/03/2028 n/a 2,808
Salary as deferred shares 217,547 42,037 – – 259,584 28/05/2024 Various 28/05/2026 n/a 535
Helen McCabe
Balance at
31 December
2023
Granted
during
the year
Vested
during
the year
Lapsed
during
the year
Balance at
31 December
2024
Date of
grant
Market price
at date of
grant (p)
Date of
vest/lapse
Market price
at date of
vest/lapse (p)
Face value
of award
(£000)
LTIP (buyout)
1
452,953 – 452,953 – – 29/11/2023 153�00 29/02/2024 3�66 1,659
LTIP (buyout)
1
734,968 – – – 734,968 29/11/2023 153�00 08/03/2025 n/a 1,148
LTIP (buyout)
2
118,156 – – – 118,156 29/11/2023 153�00 08/03/2025 n/a 181
LTIP (buyout)
2
99,212 – – – 99,212 29/11/2023 153�00 08/03/2026 n/a 152
LTIP (buyout)
1
162,337 – – – 162,337 29/11/2023 153�00 08/03/2026 n/a 248
2024 LTIP
2
– 480,284 – – 480,284 24/05/2024 433�80 24/05/2029 n/a 2,084
Incentive Plan
1
– 99,175 – – 99,175 01/03/2024 366�10 01/03/2027 n/a 363
Incentive Plan
1
– 148,763 – – 148,763 01/03/2024 366�10 01/03/2028 n/a 545
Salary as deferred shares 26,548 16,253 – – 42,801 Various Various Various n/a 122
1 Shares are not subject to performance conditions
2 Shares are subject to performance conditions
104
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
2024 REMUNERATION REPORT
Salary as deferred
shares
Until 31 May 2024, 30% of Tufan Erginbilgic’s salary and 20% of Helen McCabe’s salary was deferred into shares for
two years. During 2024, shares were awarded on a monthly basis from January to May at market price under the rules
of the incentive plan (the date of grant in the table above is the last grant made in 2024). These shares will vest on a
monthly basis from January 2025 (the date of vest/lapse in the table above is the vest date of the last grant made in
2024). The face value has been determined using the market price of each monthly award in 2024 set out below. The
shares are not subject to performance conditions nor conditional on continued employment. However, if the
Executive Director is summarily dismissed as a result of their actions or the result of actions of others acting under
their instruction, the shares will immediately lapse.
Jan F e b Mar Apr May
£3.065 £3.586 £4.220 £4.057 £4.448
Incentive Plan
Both Tufan Erginbilgic and Helen McCabe were granted an award of deferred shares under the Incentive Plan in
March 2024 in respect of the 2023 financial year. The average closing share price in the three days prior to the award
was used to calculate the number of shares awarded. 40% of each award was deferred for three years, vesting in
March 2026 and 60% of the shares will vest in March 2027. These are the final awards to be made under the hybrid
incentive plan which operated for performance periods covering 1 January 2021 to 31December 2023.
2024 LTIP
In line with our new policy, Tufan Erginbilgic and Helen McCabe were granted an award of performance shares in
May 2024 which are subject to performance conditions measured over 2024, 2025 and 2026, and will be subject to
a further two years’ deferral requirement from May 2027 until May 2029.
Executive Directors’ shareholding requirements (audited)
In line with our shareholding requirements policy, Executive Directors are required to establish and maintain a level of share ownership in
proportion to a percentage of base salary. The shareholding requirement is 400% for the Chief Executive and 300% for the Chief Financial
Officer. Share interests that are included in the shareholding requirements are as follows: shares vested from Company share plans; shares held
in the individual’s own name or by a nominee; shares held by a person closely associated (PCA) (as defined by UK Market Abuse Regulation)
where the PCA has given express permission; shares held as part of the SharePurchase Plan; and, the estimated net-of-tax shares held in trust
as part of unvested awards under the incentive plan where the awards are not subject to any performance conditions.
Individuals are expected to meet the shareholding requirement within five years of being subject to the policy. Where the shareholding
requirements are not met, individuals may only dispose of shares in the following circumstances: to cover taxation; to cover any costs associated
with the vesting or exercise of a share award; up to 50% of any shares acquired following the vesting of an award under the incentive plan;
inconnection with the operation of the malus and clawback policy; or where the Committee determines there are exceptional circumstances.
At 31 December 2024, Tufan Erginbilgic’s shareholding represented 2,468.7% of his base salary and Helen McCabe’s shareholding represented
911.1% of her base salary. They have been subject to the policy since January and August 2023 respectively. These percentages have been
calculated by reference to the three-month average share price to 31 December 2024, being the last working day of the year.
At the date of this report, the Executive Directors are also required to retain the lower of their shareholding requirement or their actual
shareholding at the date of leaving for 12 months after leaving and then half of that amount for the following 12 months. Warren East and
Panos Kakoullis have agreed to hold shares in accordance with the shareholding requirements policy until December 2024 and August 2025,
respectively.
Executive Directors’ contractual arrangements
Each Executive Director has a service agreement that sets out their contract with the Company.
Effective date of contract Notice period from Company Notice period from individual
Tufan Erginbilgic 1 January 2023 12 months 12 months
Helen McCabe 4 August 2023 12 months 12 months
105
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
2024 REMUNERATION REPORT
Pay across the organisation
This section of the report enables our remuneration arrangements to be seen in context by providing:
—
a comparison of the percentage change in our Directors’ remuneration with the change in our UK employees’ average remuneration over
twoyears;
— a ten-year history of our Chief Executive’s remuneration;
— our TSR performance over the same period;
— an indication of the ratio between our Chief Executive’s remuneration and the remuneration of employees;
— gender pay reporting; and
— a year-on-year comparison of the total amount spent on employment costs across the Group and shareholder payments.
Percentage change in Directors’ remuneration
The following table compares the percentage change in each of the Director’s salary/fees, benefits and incentive to the average percentage
change in salary, benefits and incentive for all UK employees for the past five years. This is reported only for Directors who have served two full
years�
2023–2024 2022–2023 2021–2022 2020–2021 2019–2020
Salary/
fees
%
Benefits
%
Incentive
award
%
Salary/
fees
%
Benefits
%
Incentive
award
%
Salary/
fees
%
Benefits
%
Incentive
award
%
Salary/
fees
%
Benefits
%
Incentive
award
%
Salary/
fees
%
Benefits
%
Incentive
award
%
Dame Anita Frew 16.73 40.00 n/a n/a (61.54) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Tufan Erginbilgic 3.68 262.07 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Helen McCabe
1
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Birgit Behrendt
1
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Stuart Bradie
1
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Paulo Cesar Silva
1
n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
George Culmer
2
48.24 (60.00) n/a n/a 6�25 n/a 14�29 150 n/a n/a n/a n/a n/a n/a n/a
Lord Jitesh Gadhia 32.22 – n/a 38�46 (50) n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Beverly Goulet
3
48.24 (26.87) n/a 6�25 28�85 n/a 14�29 1,633.33 n/a 7.69 – n/a (7.5) (72.27) n/a
Nick Luff
4
18.95 – n/a n/a – n/a 5�56 – n/a 38�46 – n/a (7.5) – n/a
Wendy Mars 54.22 (37.50) n/a 18.57 60 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Dame Angela Strank
5
16.88 (50.00) n/a (14.44) (50) n/a 8�43 300 n/a n/a n/a n/a n/a n/a n/a
UK employees average
6, 7
4.69 (9.80) (2.75) 5.77 (1.87) 25�42 5.71 3�8 3 1�03 (9.13) 1,435 1�96 2�23 (89.94)
1 Appointed during 2023 and therefore unable to provide percentage change for a full year’s remuneration
2 George Culmer was appointed Senior Independent Director (SID) on 12 May 2022 and received an increase in fees
3 Beverly Goulet was appointed Lead Employee Champion on 12 May 2022 and received an increase in fees
4 Nick Luff was appointed Chair of the Audit Committee on 13 May 2021 and received an increase in fees
5 Dame Angela Strank was appointed Chair of the Safety, Ethics & Sustainability (SES) Committee on 13 May 2021 and received an increase in fees. She stepped down as Chair of the SES
Committee on 11 May 2023
6 UK employees were chosen as a comparator group in order to avoid the impact of exchange rate movements over the year. UK employees including apprentices, graduates and interns
make up 50% of the total employee population and are employed by Rolls-Royce plc or its relevant subsidiaries. Rolls-Royce Holdings plc has no employees
7 There was an incentive award for only a very small population in 2020, hence the significant increase in 2021
Chief Executive pay
Year Chief Executive
Single figure of
total remuneration
£000
Incentive award as
a % of maximum
LTIP as a % of
maximum
2024 Tufan Erginbilgic 4,113 97 –
2023 Tufan Erginbilgic 13,610 97 –
2022 Warren East 3,835 74 –
2021 Warren East 3,950 79.7 –
2020 Warren East 1,110 – –
2019 Warren East 2,528 52 53
2018 Warren East 4,075 60 100
2017 Warren East 2,331 68 –
2016 Warren East 2,089 55 –
2015 Warren East 543 – –
John Rishton 754 – –
John Rishton retired on 2 July 2015 and Warren East was appointed as Chief Executive on 3 July 2015.
Warren East retired on 31 December 2022 and Tufan Erginbilgic was appointed as Chief Executive on 1 January 2023. Tufan received
compensation for remuneration forfeited from previous employment in 2023.
106
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
2024 REMUNERATION REPORT
TSR performance
The Company’s TSR performance over the previous ten years compared to a broad equity market index is shown in the graph below.
The FTSE 100 has been chosen as the comparator because it contains a broad range of other UK-listed companies. The graph shows the change
in value of a hypothetical £100 holding in the Company’s ordinary shares over ten years (prior years adjusted for the rights issue), relative to the
FTSE 100 index.
Rolls-Royce
FTSE 100
20142013 2015 2016 2017 2018 2019 2020 2021 2023 20242022
100
200
300
£
Chief Executive pay ratio
The Committee is mindful of the relationship between the remuneration of the Chief Executive and the wider employee population. This is the
seventh year that we have published our Chief Executive pay ratio and we have continued to use option A. We believe that this is the most
accurate and robust methodology because it relies on calculating actual full time equivalent remuneration for all relevant employees rather than
rely on data collected for other purposes. We have used the full time equivalent total remuneration of all UK employees at 31 December 2024.
Year Method 25th percentile Median 75th percentile
2024 Option A 74:1 64:1 54:1
2023
1
Option A 254:1 219:1 185:1
2022 Option A 75:1 64:1 55:1
2021 Option A 88�1 76.1 63�1
2020 Option A 26:1 22:1 19:1
2019 Option A 66:1 56:1 48:1
2018 Option A 92:1 77:1 66:1
For 2024, the salary and total remuneration for the three employees identified at the 25th, median and 75th percentiles are as follows:
Year 25th percentile Median 75th percentile
Salary
2
£44,585 £54,587 £64,687
Total remuneration £55,219 £63,976 £76,643
1 The 2023 pay ratio was elevated primarily by the award of shares valued at £7.5m at the time of grant to the Chief Executive as compensation for remuneration forfeited from previous
employment. If this value was removed from the calculation the median pay ratio would have been 98:1
2 Calculated using base pay as at 31 December 2024
There is good alignment between the reward structure for the Chief Executive and that of the wider workforce, with the majority of employees
participating in an incentive plan with aligned financial metrics. We also encourage all eligible employees to join our all-employee share plans,
with over 99% of our global population receiving an award of shares in 2024 under our Your Shares: Gifted plan. Over 50% of our global
population enrolled in our most recent ShareSave plan and approximately 35% of the UK population also participate in our SharePurchase Plan.
In 2025, we will be launching Your Shares: Matched, a global purchase plan which will be structured to offer matching free shares for every share
purchased up to maximum monthly limit. This aligns to our broader strategy to increase employee share ownership and links directly to the
transformation programme.
107
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
2024 REMUNERATION REPORT
Relative importance of spend on pay
The following chart sets out the percentage change in payments to shareholders and overall expenditure on pay across the Group.
Payment to shareholders (£m) Group employment costs (£m)
(Consolidated cash flow statement)
2024
2
023
0 (0%)
0 (0%)
(Note 8, employee information – see page 150)
2024
2
023
3,951 (4.9%)
3,768 (8.7%)
Gender pay reporting
In accordance with The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017, we published our UK gender pay gap in
February 2025, which is available at www.rolls-royce.com:
Median gender pay gap across all employees in the UK Mean gender pay gap across all employees in the UK
2024
2
023
4.4%
3.7%
2024
2
023
1.6%
1.2%
The slightly increased pay gap in the UK is a consequence of changing levels of representation of women within our workforce. For example,
while never compromising on our merit-based approach, we have hired a higher proportion of female graduates and apprentices over recent
years which skews the proportion of female employees with below average earnings in the near term. Women are currently less well represented
in the middle two quartiles of our UK workforce due to proportionately more men being in professional level roles which are dominated by
engineering or shop floor populations which attract a premium for working shifts.
108
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
2024 REMUNERATION REPORT
Non-Executive Directors’ remuneration
Non-Executive Directors’ single figure of remuneration (audited)
Fees
(£000)
Benefits
(£000)
Total remuneration
(£000)
2024 2023 2024 2023 2024 2023
Dame Anita Frew 572 490 7 5 579 495
Birgit Behrendt
1
90 45 5 10 95 55
Stuart Bradie
1
90 45 3 1 93 46
Paulo Cesar Silva
2
90 23 5 8 95 31
George Culmer 126 85 2 5 128 90
Lord Jitesh Gadhia 119 90 1 1 120 91
Beverly Goulet 126 85 49 67 175 152
Nick Luff 113 95 – – 113 95
Wendy Mars
3
128 83 5 8 133 91
Dame Angela Strank
4
90 77 1 2 91 79
Paul Adams
5
n/a 54 n/a 6 n/a 60
Mike Manley
6
n/a 26 n/a 3 n/a 29
Sir Kevin Smith
6
n/a 26 n/a 1 n/a 27
Total 1,544 1,224 78 117 1,622 1,341
1 Birgit Behrendt and Stuart Bradie were appointed as Non-Executive Directors on 11 May 2023
2 Paulo Cesar Silva was appointed as a Non-Executive Director on 1 September 2023
3 Wendy Mars was appointed Chair of the Safety, Energy Transition & Tech Committee on 11 May 2023 and a member of the Remuneration Committee on 23 May 2024
4 Dame Angela Strank stepped down as Chair of the Safety, Ethics & Sustainability Committee on 11 May 2023
5 Paul Adams stepped down as Chair of the Science & Technology Committee on 11 May 2023 and from the Board on 1 September 2023
6 Mike Manley and Sir Kevin Smith stepped down from the Board on 11 May 2023
Non-Executive Directors’ fees
The Chair’s fee is reviewed by the Board as a whole on the recommendation of the Committee. The review of the other Non-Executive Directors’
base fees is reviewed by the Chair and Executive Directors. No individual may be involved in setting his or her own fee. In December 2023, the
Chair’s fee and those of the other Non-Executive Directors were reviewed and it was agreed to change these with effect from 1 June 2024. No
changes had been made to the Non-Executive Directors’ fees since June 2014. Fees from 1 June 2024 are set out in the table below. Fees were
reviewed further in 2025. Changes were approved effective 1 March 2025, as set out below, representing a 5% increase in line with the awards
to our executive directors (see page 87).
1 March 2025
£000
1 June 2024
£000
2023
£000
Chair 662 630 490
Other Non-Executive Directors base 95 90 70
Chair of the Audit Committee 37 35 25
Chair of the Remuneration Committee 37 35 20
Chair of the Safety, Energy Transition & Tech Committee 37 35 –
Chair of the Safety, Ethics & Sustainability Committee – – 20
Chair of the Science & Technology Committee – – 20
Committee member 16 15 –
Senior Independent Director 37 35 15
Lead Employee Champion 21 20 15
UK Employee Champion 16 15 –
North American board member 16 15 –
Non-Executive Directors’ benefits (audited)
The benefits for Non-Executive Directors relate predominantly to travel, hotel and subsistence incurred in attending meetings and site visits.
For Non-Executive Directors based outside the UK, the Company may also pay towards tax advice and the cost of making tax filings.
109
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
2024 REMUNERATION REPORT
Non-Executive Directors’ share interests (audited)
The Non-Executive Directors are not eligible to participate in any of the Group’s share schemes, incentive arrangements or pension schemes.
A facility is in place which enables Non-Executive Directors, who reside in a permitted dealing territory, to use some or all of their fees, after the
appropriate statutory deductions, to make market purchases of shares in the Company on a monthly basis. Wendy Mars and Birgit Behrendt use
this facility.
The Non-Executive Directors and their connected persons hold the following interests in the ordinary shares of the Company:
27 February 2025 31 December 2024 23 February 2024 31 December 2023
Dame Anita Frew 350,000 350,000 350,000 350,000
Birgit Behrendt
1
3,816 3,441 1,092 379
Stuart Bradie
1
95,437 95,437 95,437 95,437
Paulo Cesar Silva
2
94,546 94,546 94,546 94,546
George Culmer 37,960 37,960 37,960 37,960
Lord Jitesh Gadhia 50,000 50,000 50,000 50,000
Beverly Goulet 40,972 40,972 40,972 40,972
Nick Luff 120,000 120,000 120,000 120,000
Wendy Mars 48,942 48,318 34,339 33,155
Dame Angela Strank 70,653 70,653 60,583 60,583
1 Birgit Behrendt and Stuart Bradie were appointed as Non-Executive Directors on 11 May 2023
2 Paulo Cesar Silva was appointed as a Non-Executive Director on 1 September 2023. He holds a percentage of his share interests as American Depository Receipts
Non-Executive Directors’ letters of appointment
Our Non-Executive Directors serve two, three-year terms followed by three, one-year terms (nine years in total).
Original appointment date
Current letter of
appointment end date
Dame Anita Frew 1 July 2021 30 June 2027
Birgit Behrendt 11 May 2023 10 May 2026
Stuart Bradie 11 May 2023 10 May 2026
Paulo Cesar Silva 1 September 2023 31 August 2026
George Culmer 2 January 2020 1 January 2026
Lord Jitesh Gadhia 1 April 2022 31 March 2025
Beverly Goulet 3 July 2017 2 July 2025
Nick Luff 3 May 2018 2 May 2025
Wendy Mars 8 December 2021 7 December 2027
Dame Angela Strank 1 May 2020 30 April 2026
Shareholder voting
The remuneration policy was last approved by shareholders at our 2024 AGM held on 23 May 2024 and the remuneration report was last approved
by shareholders at our 2024 AGM held on 23 May 2024. Details of voting are shown in the table below. Withheld votes are not counted towards
the total percentage of votes cast.
For % For Against % Against Withheld
Approval of the remuneration policy (2024) 4,984,345,255 95�59 230,098,759 4�41 6,268,408
Approval of the remuneration report (2024) 5,114,309,895 97.99 104,645,100 2�00 1,753,668
Statutory requirements
The Committee’s composition, responsibilities and operation comply with the principles of good governance, as set out in the Code, the UK
Listing Rules (of the Financial Conduct Authority) and the Companies Act 2006. The Directors’ remuneration report has been prepared on the
basis prescribed in the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
The Remuneration Report, comprising the Remuneration Committee
report, the remuneration policy and the 2024 remuneration report,
hasbeen approved by the Board and signed on its behalf by:
Lord Jitesh Gadhia
Chair of the Remuneration Committee
27 February 2025
110
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
2024 REMUNERATION REPORT
I am pleased to present the 2024 report of the Safety, Energy Transition
& Tech (SETT) Committee. The SETT Committee focuses on safety and
the energy transition agenda and provides oversight and assurance of
the Group’s scientific and technological strategy, processes and
investments. A summary of the SETT Committee’s remit can be found
on page 72. The Committee members, all Non-Executive Directors,
bring deep experience in the Committee’s areas of focus which they
have gained in their various external executive roles. This is invaluable
to the Committee in its oversight role and enables appropriate and
robust challenge�
The Committee has met three times in 2024, with the February meeting
focused on reporting only. After each meeting, the Committee meets
without management present. During the year, the Committee members
visited our Power Systems division in Friedrichshafen, Germany, where
they met with key management and discussed safety, both people and
product, and energy transition.
The Committee is supported at executive-level by the Director of
Engineering, Technology & Safety and the Chief Transformation Officer,
who have responsibility for the energy transition strategy and the
Executive-level energy transition & technology committee. The Group’s
chief engineer is invited to attend every meeting of the Committee.
Safety
Safety, both people and product, is the first priority for the Group.
People safety updates were received at the two main meetings,
including a summary of performance in 2024 and the associated action
plans for 2025 to ensure continuous improvement towards embedding
Group-wide standards and policies.
During 2024, we reviewed the updated product safety policy and
considered in detail the product safety principal risk. The Committee
reviewed reports regarding product safety risk management
effectiveness from the Group’s director of technical & safety assurance.
In addition, any emerging factors identified as risk areas and the
proposed improvements, including recommending increases in the
audit of processes, were discussed. The Committee also reviewed
relevant internal audit reports in relation to product safety.
In June 2024, members of the Committee visited Friedrichshafen,
Germany, to meet different teams across the Power Systems division
and to learn at first hand the management and importance of both
people and product safety. We gained insight into the Power Systems
business, including the latest reporting on safety metrics. We also took
part in a round-table discussion with colleagues to discuss more broadly
both product safety and the energy transition agenda.
As part of the visit, the Committee was also taken on a tour of the
manufacturing site. This focused on people safety and the division’s
journey to Zero Harm. The Committee also visited the training centre
to gain an insight into the services operations. The Committee members
were encouraged by the demonstrable commitment to the continuous
improvement to the safety agenda.
Energy Transition
An area of focus for the Committee is to provide oversight of the Group’s
energy transition strategy and to receive progress reports against
policies, strategies, KPIs, plans, capability, process and systems. During
the year, we reviewed progress made in 2024 with Scope 1 + 2 emissions
reduction plans and the Scope 3, category 11 (use of sold products)
emissions reporting (see page 42). The Committee reviewed the
proposed sustainability strategy ahead of its approval by the Board in
July and, together with the Audit Committee, the Group’s readiness for
compliance reporting with the new regulations from 2026 onwards.
At our meeting in February 2025, as part of the year-end reporting,
the Committee reviewed the Sustainability report set out on pages 32
to 45 and recommended it to the Board for approval.
Tech
In May 2024, the Group Director of Engineering, Technology & Safety
presented the timeline for the product and technology roadmaps.
The Committee held two deep dives during the year which the full
Board was invited to attend. During October, the Committee held a
deep dive on the Rolls-Royce SMR programme. An update was presented
on the development programme and completed work to date, with all
our commitments and targets having been met to date. The Committee
discussed the challenge of nuclear new build and support for
decarbonising the industry. In November, a deep dive was held on
UltraFan which covered an update of the programme, how UltraFan
will contribute towards net zero and the next generation of advanced
technology. In addition, a discussion took place on the UltraFan
demonstrator which was delivering in line with expectations.
Summary
2024 was our first full year as the SETT Committee and I would like to
thank my colleagues on the Committee for their engagement and
support during the year. Our evaluation noted that this Committee had
made a strong start. There is, however, more to do in 2025 in all areas
of our remit. We will maintain a robust oversight of safety, both people
and product, and the delivery of the sustainability strategy. The
Committee are keen to learn more in respect of the technology agenda
in 2025, including digital and AI, and how these impact the future of
our technologies. We will continue to visit sites to ensure we can see
at first-hand the progress being made.
Wendy Mars
Chair of the Safety, Energy Transition & Tech Committee
Members Wendy Mars (Chair)
Birgit Behrendt
Stuart Bradie
Paulo Cesar Silva
Dame Angela Strank
Biographies are on pages 68 and 69
Remit See page 72
KEY AREAS OF FOCUS IN 2024
Principal risk reviews and deep dives into people and product safety.
Site visit with safety focus to Power Systems in Friedrichshafen, Germany
Review of progress of the energy transition and climate agendas; review
of the sustainability report for recommendation to the Board
Review of Group-wide improvement programmes for people safety
Technology and product roadmap timeline; deep dives focused on SMR
and UltraFan programmes
111
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
GOVERNANCE REPORT
Safety, Energy Transition & Tech Committee report
Statement of Directors’ responsibilities in respect of the
financial statements
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law, the Directors have prepared the
Group Financial Statements in accordance with UK-adopted international
accounting standards and the Company Financial Statements in
accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, comprising FRS 101
Reduced Disclosure Framework and applicable law).
Under company law, Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and Company and of the profit or
loss of the Group for that period. In preparing the financial statements,
the Directors are required to:
—
select suitable accounting policies and then apply them consistently;
—
state whether applicable UK-adopted international accounting
standards have been followed for the Group financial statements
and United Kingdom Accounting Standards, comprising FRS 101 have
been followed for the Company financial statements, subject to any
material departures disclosed and explained in the financial
statements;
—
make judgements and accounting estimates that are reasonable and
prudent; and
— prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Group and Company will
continue in business.
The Directors are responsible for safeguarding the assets of the Group
and the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and the
Company’s transactions and disclose with reasonable accuracy at any
time the financial position of the Group and the Company and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006.
The Directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
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 the
Company’s 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 and financial
position of the Company; and
— the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and the
Company, together with a description of the principal risks and
uncertainties that it faces.
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 the Company’s auditors are unaware; and
—
they have taken all the 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 and the Company’s
auditors are aware of that information.
By order of the Board
Claire-Marie O’Grady
Chief Governance Officer
27 February 2025
112
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Responsibility statements
FINANCIAL
STATEMENTS
Consolidated Financial Statements
Primary statements
Consolidated income statement �������������������������������������������������������������� 114
Consolidated statement of comprehensive income ��������������������������115
Consolidated balance sheet ����������������������������������������������������������������������116
Consolidated cash flow statement ���������������������������������������������������������� 117
Consolidated statement of changes in equity ����������������������������������� 120
Notes to the Consolidated Financial Statements
1 Accounting policies������������������������������������������������������������������������������ 122
2 Segmental analysis�������������������������������������������������������������������������������� 137
3 Research and development ��������������������������������������������������������������� 144
4 Net financing ������������������������������������������������������������������������������������������ 144
5 Taxation ���������������������������������������������������������������������������������������������������� 145
6 Earnings per ordinary share �������������������������������������������������������������149
7 Auditors’ remuneration �����������������������������������������������������������������������149
8 Employee information��������������������������������������������������������������������������150
9 Intangible assets ������������������������������������������������������������������������������������� 151
10 Property, plant and equipment �������������������������������������������������������� 155
11 Right-of-use assets ������������������������������������������������������������������������������� 157
12 Investments ���������������������������������������������������������������������������������������������158
13 Inventories �����������������������������������������������������������������������������������������������160
14 Trade receivables and other assets ������������������������������������������������160
15 Contract assets and liabilities ������������������������������������������������������������161
16 Cash and cash equivalents ���������������������������������������������������������������� 162
17 Borrowings and lease liabilities �������������������������������������������������������� 162
18 Leases��������������������������������������������������������������������������������������������������������163
19 Trade payables and other liabilities ������������������������������������������������ 164
20 Financial instruments ���������������������������������������������������������������������������165
21 Provisions for liabilities and charges ��������������������������������������������� 175
22 Post-retirement benefits��������������������������������������������������������������������� 176
23 Share capital �������������������������������������������������������������������������������������������� 181
24 Share-based payments ������������������������������������������������������������������������ 182
25 Contingent liabilities �������������������������������������������������������������������������� 183
26 Related party transactions ���������������������������������������������������������������� 183
27 Business disposals and businesses held for sale ������������������������ 184
28 Derivation of summary funds flow statement ������������������������������186
Company Financial Statements
Primary statements
Company balance sheet ���������������������������������������������������������������������������� 187
Company statement of changes in equity ������������������������������������������� 188
Notes to the Company Financial Statements
1 Accounting policies������������������������������������������������������������������������������189
2 Investments – subsidiary undertakings �����������������������������������������190
3 Trade payables and other liabilities ������������������������������������������������190
4 Financial liabilities ��������������������������������������������������������������������������������190
5 Share capital �������������������������������������������������������������������������������������������� 191
6 Reconciliation of net assets between
Rolls-Royce Holdings plc Group and Company �������������������������� 191
7 Contingent liabilities �����������������������������������������������������������������������������191
8 Other information ���������������������������������������������������������������������������������� 191
Subsidiaries ���������������������������������������������������������������������������������������������������� 192
Joint ventures and associates ������������������������������������������������������������������196
113
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Consolidated income statement
Year ended 31 December 2024
20242023
Notes£m£m
Revenue
2
18,909
16,486
Cost of sales
1, 2
(14 ,6 8 8)
(1 2, 8 66)
Gross profit
2
4, 221
3 ,620
Commercial and administrative costs
2
(1 , 2 8 4)
(1 ,11 0)
Research and development costs
2
2, 3
(20 3)
(7 39)
Share of results of joint ventures and associates
12
172
173
Operating profit
2,906
1,94 4
Gain arising on disposal of businesses
27
16
1
Profit before financing and taxation
2, 922
1,945
Financing income
4
536
1,1 6 3
Financing costs
4
(1 , 2 2 4)
(681)
Net financing (costs)/income
3
(68 8)
482
Profit before taxation
2, 234
2, 42 7
Taxation
5
2 50
(2 3)
Profit for the year
2,484
2,404
Attributable to:
Ordinary shareholders
2 , 521
2 , 412
Non-controlling interests (NCI)
(37)
(8)
Profit for the year
2,484
2,404
Other comprehensive income/(expense) (OCI)
50
(171)
Total comprehensive income for the year
2 , 534
2, 233
Earnings per ordinary share attributable to ordinary shareholders:6
Basic
30.05p
28.85p
Diluted
29.87p
28.70p
1 Cost of sales includes a net charge for expected credit losses (ECLs) of £1 4m (2023: net release of £4 8m). Further detail can be found in note 14
2 The impact of an exceptional impairment reversal relating to a Civil Aerospace programme impairment that was recognised in 2020 is included within cost of sales, £132m, and research
and development, £41 3m. Further details can be found in notes 2, 3 and 9
3 Included within net financing are fair value changes on derivative contracts. Further details can be found in notes 2, 4 and 20
114
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statement of comprehensive income
Year ended 31 December 2024
20242023
Notes£m£m
Profit for the year
2,484
2,404
Other comprehensive income/(expense) (OCI)
Actuarial movements on post-retirement schemes
22
22
11 6
Revaluation to fair value of other investments
12
(2)
(4)
Share of OCI of joint ventures and associates
12
(1)
1
Related tax movements
5
61
(4 3)
Items that will not be reclassified to profit or loss
80
70
Foreign exchange translation differences on foreign operations
(29)
(22 6)
Foreign exchange translation differences reclassified to income statement
on disposal of businesses
–
1
Movement on fair values charged to cash flow hedge reserve
(17)
(82)
Reclassified to income statement from cash flow hedge reserve
22
61
Share of OCI of joint ventures and associates
12
(3)
1
Related tax movements
5
(3)
4
Items that will be reclassified to profit or loss
(30)
(241)
Total other comprehensive income/(expense)
50
(17 1)
Total comprehensive income for the year
2 , 534
2, 233
Attributable to:
Ordinary shareholders
2 , 57 1
2 , 241
NCI
(37)
(8)
Total comprehensive income for the year
2 , 534
2, 233
115
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheet
At 31 December 2024
20242023
Notes£m£m
ASSETS
Intangible assets
9
4 , 402
4,0 09
Property, plant and equipment
10
3,7 2 4
3,728
Right-of-use assets
11
761
90 5
Investments – joint ventures and associates
12
592
479
Investments – other
12
5
31
Other financial assets
20
126
36 0
Deferred tax assets
5
3,660
2 ,9 98
Post-retirement scheme surpluses
22
79 0
782
Non-current assets
14, 06 0
13 ,2 92
Inventories
13
5 ,092
4, 84 8
Trade receivables and other assets
14
8 ,7 1 3
8,12 3
Contract assets
15
1 , 813
1 , 242
Taxation recoverable
71
80
Other financial assets
20
209
34
Cash and cash equivalents
16
5, 575
3,7 8 4
Current assets
21 , 473
18,111
Assets held for sale
27
1 53
109
TOTAL ASSETS
35,686
3 1 , 512
LIABILITIES
Borrowings and lease liabilities
17
(1 ,0 9 7)
(80 9)
Other financial liabilities
20
(64 2)
(4 4 8)
Trade payables and other liabilities
19
(8 ,0 0 9)
(6 , 89 6)
Contract liabilities
15
(6 , 3 09)
(6,098)
Current tax liabilities
(117)
(143)
Provisions for liabilities and charges
21
(58 9)
(532)
Current liabilities
(1 6 ,763)
(14 , 92 6)
Borrowings and lease liabilities
17
(4 , 03 5)
(4 , 9 5 0)
Other financial liabilities
20
(1 ,6 4 0)
(1, 9 83)
Trade payables and other liabilities
19
(1,965)
(1 ,9 27)
Contract liabilities
15
(9, 4 47)
(8, 4 38)
Deferred tax liabilities
5
(2 31)
(3 30)
Provisions for liabilities and charges
21
(1 , 4 0 5)
(1, 4 97)
Post-retirement scheme deficits
22
(9 81)
(1,03 5)
Non-current liabilities
(19 ,70 4)
(20 ,160)
Liabilities associated with assets held for sale
27
(10 0)
(55)
TOTAL LIABILITIES
(36,56 7)
(35,141)
NET LIABILITIES
(88 1)
(3,629)
EQUITY
Called-up share capital
23
1 ,70 1
1,6 84
Share premium
1,012
1 ,012
Capital redemption reserve
168
167
Cash flow hedge reserve
13
12
Translation reserve
603
63 4
Accumulated losses
(4 , 4 0 9)
(7, 1 9 0)
Equity attributable to ordinary shareholders
(912)
(3, 68 1)
Non-controlling interest (NCI)
31
52
TOTAL EQUITY
(88 1)
(3,629)
The Financial Statements on pages 114 to 186 were approved by the Board on 27 February 2025 and signed on its behalf by:
Tufan Erginbilgic Helen McCabe
Chief Executive Chief Financial Officer
116
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated cash flow statement
Year ended 31 December 2024
20242023
Notes£m£m
Reconciliation of cash flows from operating activities
Operating profit
2,906
1, 94 4
Loss on disposal of property, plant and equipment
32
18
Loss on disposal of intangible assets
6
–
Share of results of joint ventures and associates
12
(1 72)
(17 3)
Dividends received from joint ventures and associates
12
77
54
Amortisation and impairment of intangible assets
9
(12 0)
272
Depreciation and impairment of property, plant and equipment
10
400
423
Depreciation and impairment of right-of-use assets
11
265
33 4
Adjustment of amounts payable under residual value guarantees within lease liabilities
18
(6)
(10)
Impairment of and other movements on investments
12
4
–
Decrease in provisions
(56)
(32 5)
Increase in inventories
(323)
(20 0)
Movement in trade receivables/payables and other assets/liabilities
833
(1,346)
Movement in contract assets/liabilities
752
2 ,7 03
Cash flows on other financial assets and liabilities held for operating purposes
1
(676)
(8 4 5)
Cash flows on settlement of excess derivative contracts
2
(14 6)
(389)
Interest received
269
159
Net defined benefit post-retirement cost recognised in profit before financing
22
56
41
Cash funding of defined benefit post-retirement schemes
22
(74)
(6 9)
Share-based payments
24
13 6
66
Net cash inflow from operating activities before taxation
4 ,1 63
2, 657
Taxation paid
(381)
(17 2)
Net cash inflow from operating activities
3,7 8 2
2, 48 5
Cash flows from investing activities
Movement in other investments
12
–
1
Additions of intangible assets
9
(367)
(28 4)
Disposals of intangible assets
5
4
Purchases of property, plant and equipment
(51 9)
(42 9)
Disposals of property, plant and equipment
5
10
Acquisition of businesses
–
(14)
Disposal of businesses (including cash flows on disposals in prior periods)
27
62
(4)
Movement in investments in joint ventures and associates
12
(17)
(9)
Movement in short-term investments
–
11
Cash flows on other financial assets and liabilities held for non-operating purposes
–
(12)
Net cash outflow from investing activities
(831)
(72 6)
Cash flows from financing activities
Repayment of loans
(475)
(1)
Settlement of swaps hedging fixed rate borrowings
(11)
–
Proceeds from increase in loans
7
2
Capital element of lease payments
(29 9)
(29 1)
Net cash flow from decrease in borrowings and lease liabilities
(7 7 8)
(2 9 0)
Interest paid
(20 0)
(19 6)
Interest element of lease payments
(8 3)
(8 5)
Fees paid on undrawn facilities
(1 5)
(52)
Transactions with NCI
3
33
7 7
Dividends to NCI
(3)
(2)
Redemption of C Shares
(1)
(1)
Net cash outflow from financing activities
(1 , 0 47)
(54 9)
117
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated cash flow statement continued
Year ended 31 December 2024
20242023
Notes£m£m
Change in cash and cash equivalents
1,904
1,210
Cash and cash equivalents at 1 January
3,73 1
2 ,60 5
Exchange losses on cash and cash equivalents
(62)
(8 4)
Cash and cash equivalents at 31 December
4
5, 57 3
3 ,7 31
1 Predominately relates to cash settled on derivative contracts held for operating purposes
2 In 2020, the Group took action to reduce the size of the USD hedge book by $11.8bn across 2020-2026 to reflect the fact that at that time, future operating cash flows were no longer
forecast to materialise. To achieve the necessary reduction in the hedge book, a separate and distinct set of foreign exchange derivative instruments were entered into to buy $11.8bn
which had the impact of fixing the fair value of the over-hedged position and provided certainty over when the cash flows to settle the position would occur in future periods. The
associated cash outflow of these transactions is £1,674m and occurs over the period 2020-2026. During the year, the Group incurred a cash outflow of £14 6m (2023: £3 8 9m) and estimates
that future cash outflows of £148m will be incurred during 2025 and £27m during 2026
3 Relates to NCI investment received in the year in respect of Rolls-Royce SMR Limited
4 The Group considers overdrafts (repayable on demand) 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 consolidated cash flow statement, movement in balance sheet 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 – see note 26.
2024 2023
£m £m
Reconciliation of movements in cash and cash equivalents to movements in net cash/(debt)
Change in cash and cash equivalents
1,904
1,210
Cash flow from decrease in borrowings and lease liabilities
778
290
Less: settlement of related derivatives included in fair value of swaps below
(11)
–
Cash flow from decrease in short-term investments
–
(11)
Change in net cash/(debt) resulting from cash flows
2,671
1,489
Lease additions, modifications and other non-cash adjustments on borrowings and lease liabilities
(193)
(191)
Exchange (losses)/gains on net cash/(debt)
(50)
57
Fair value adjustments
(11)
7
Movement in net cash/(debt)
2,417
1,362
Net (debt) at 1 January
(1,975)
(3,337)
Net cash/(debt) at 31 December excluding the fair value of swaps
442
(1,975)
Fair value of swaps hedging fixed rate borrowings
33
23
Net cash/(debt) at 31 December
475
(1,952)
118
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated cash flow statement continued
Year ended 31 December 2024
The movement in net cash/(debt) (defined by the Group as including the items shown below) is as follows:
Funds Exchange Fair value Reclassi- Other At
At 1 January flow differences adjustments fications movements 31 December
£m £m £m £m £m £m £m
2024
Cash at bank and in hand
739
(15)
(10)
–
–
–
714
Money market funds
1,077
841
(18)
–
–
–
1,900
Short-term deposits
1,968
1,027
(34)
–
–
–
2,961
Cash and cash equivalents (per balance sheet)
3,784
1,853
(62)
–
–
–
5,575
Overdrafts
(53)
51
–
–
–
–
(2)
Cash and cash equivalents (per cash flow statement)
3,731
1,904
(62)
–
–
–
5,573
Other current borrowings
(478)
471
–
(18)
(774)
–
(799)
Non-current borrowings
(3,568)
(3)
19
7
774
(5)
(2,776)
Lease liabilities
(1,660)
299
(7)
–
1
(188)
(1,555)
Lease liabilities included within liabilities held for sale
–
–
–
–
(1)
–
(1)
Financial liabilities
(5,706)
767
12
(11)
–
(193)
(5,131)
Net cash/(debt) excluding the fair value of swaps
(1,975)
2,671
(50)
(11)
–
(193)
442
Fair value of swaps hedging fixed rate borrowings
1
23
11
(18)
17
–
–
33
Net cash/(debt)
(1,952)
2,682
(68)
6
–
(193)
475
2023
Cash at bank and in hand
847
(79)
(29)
–
–
–
739
Money market funds
34
1,043
–
–
–
–
1,077
Short-term deposits
1,726
297
(55)
–
–
–
1,968
Cash and cash equivalents (per balance sheet)
2,607
1,261
(84)
–
–
–
3,784
Overdrafts
(2)
(51)
–
–
–
–
(53)
Cash and cash equivalents (per cash flow statement)
2,605
1,210
(84)
–
–
–
3,731
Short-term investments
11
(11)
–
–
–
–
–
Other current borrowings
(1)
(1)
–
(13)
(462)
(1)
(478)
Non-current borrowings
(4,105)
–
59
20
462
(4)
(3,568)
Lease liabilities
(1,847)
291
82
–
–
(186)
(1,660)
Financial liabilities
(5,953)
290
141
7
–
(191)
(5,706)
Net (debt) excluding the fair value of swaps
(3,337)
1,489
57
7
–
(191)
(1,975)
Fair value of swaps hedging fixed rate borrowings
1
86
–
(59)
(4)
–
–
23
Net (debt)
(3,251)
1,489
(2)
3
–
(191)
(1,952)
1 Fair value of swaps hedging fixed rate borrowings reflects the impact of derivatives on repayments of the principal amount of debt. Net cash/(debt) therefore includes the fair value of
derivatives included in fair value hedges (2024: £62m, 2023: £34m) and the element of fair value relating to exchange differences on the underlying principal of derivatives in cash flow
hedges (2024: £(29)m, 2023: £(11)m)
119
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statement of changes in equity
Year ended 31 December 2024
The following describes the nature and purpose of each reserve within equity:
Share capital – The nominal value of ordinary shares of 20p each in issue.
Share premium – Proceeds received in excess of the nominal value of ordinary shares issued, less the costs of issue.
Capital redemption reserve – Amounts transferred from accumulated losses on the repurchase of ordinary shares or the redemption of C Shares.
In Rolls-Royce Holdings plc’s own Financial Statements, C Shares are issued from the merger reserve. This reserve was created by a scheme of
arrangement in 2011. As this reserve is eliminated on consolidation in the Consolidated Financial Statements, the C Shares are shown as being
issued from the capital redemption reserve.
Hedging reserves – Cumulative gains and losses on hedging instruments deemed effective in cash flow hedges and cost of hedging reserve.
Merger reserve – The premium on issuing shares to acquire a business where merger relief in accordance with the Companies Act 2006 applies.
Translation reserve – Gains and losses arising on retranslating the net assets of overseas operations into sterling.
Accumulated losses – All other net gains and losses and transactions with owners not recognised elsewhere and ordinary shares held for the
purpose of share-based payment plans.
Non-controlling interests – The share of net assets or liabilities of subsidiaries held by third parties.
Attributable to ordinary shareholders
Capital Cash flow Trans-Accum-
Share Share redemption hedging lation ulatedTotal
capitalpremiumreservereservereserve
losses
1
TotalNCIequity
Notes£m£m£m£m£m£m£m£m£m
At 1 January 2024
1,684
1 ,012
16 7
12
634
(7, 1 9 0)
(3 ,6 81)
52
(3,629)
Profit/(loss) for the year
–
–
–
–
–
2 , 521
2 , 521
(3 7)
2,484
Foreign exchange translation differences
on foreign operations
–
–
–
–
(29)
–
(29)
–
(29)
Actuarial movements on post-retirement
schemes
22
–
–
–
–
–
22
22
–
22
Fair value movement on cash flow
hedges
–
–
–
(17)
–
–
(17)
–
(1 7)
Reclassified to income statement from
cash flow hedge reserve
–
–
–
22
–
–
22
–
22
Revaluation to fair value of other
investments
12
–
–
–
–
–
(2)
(2)
–
(2)
OCI of joint ventures and associates
12
–
–
–
(3)
–
(1)
(4)
–
(4)
Related tax movements
5
–
–
–
(1)
(2)
61
58
–
58
Total comprehensive income/(expense)
forthe year
–
–
–
1
(31)
2,601
2 , 571
(37)
2 , 534
Issues of ordinary shares
17
–
–
–
–
–
17
–
17
Redemption of C Shares
20
–
–
1
–
–
(1)
–
–
–
Shares issued to employee share trust
–
–
–
–
–
(17)
(17)
–
(17)
Share-based payments – direct to equity
2
–
–
–
–
–
95
95
–
95
Dividends to NCI
–
–
–
–
–
–
–
(3)
(3)
Transactions with NCI
3
–
–
–
–
–
32
32
19
51
Related tax movements
–
–
–
–
–
71
71
–
71
Other changes in equity in the year
17
–
1
–
–
180
198
16
214
At 31 December 2024
1 ,701
1,012
168
13
603
(4 , 4 0 9)
(9 12)
31
(881)
A final dividend in respect of the year ended 31 December 2024 of 6 pence per share, or approximately £504m, based on a 30% pay-out ratio
of underlying profit after tax attributable to ordinary shareholders (adjusted for the one-off non-cash impact of £3 4 6m related to the net
recognition of deferred tax assets on UK tax losses, see note 5, page 148 for further details), is to be proposed at the forthcoming AGM. These
financial statements do not reflect this proposed dividend.
120
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated statement of changes in equity continued
Year ended 31 December 2023
Attributable to ordinary shareholders
CapitalCash flow Trans-Accum-
Share Share redemptionhedging lation ulatedTotal
reservereservereserve1equity
capitalpremiumlosses TotalNCI
Notes£m£m£m£m£m£m£m£m£m
At 1 January 2023
1 , 6 74
1,012
1 66
26
861
(9,7 8 9)
(6, 05 0)
34
(6,0 16)
Profit/(loss) for the year
–
–
–
–
–
2, 41 2
2 , 412
(8)
2,404
Foreign exchange translation differences
on foreign operations
–
–
–
–
(22 6)
–
(2 26)
–
(2 26)
Foreign exchange translation differences
reclassified to income statement on
disposal of businesses
–
–
–
–
1
–
1
–
1
Actuarial movements on post-retirement
schemes
22
–
–
–
–
–
116
116
–
116
Fair value movement on cash flow
hedges
–
–
–
(82)
–
–
(82)
–
(82)
Reclassified to income statement from
cash flow hedge reserve
–
–
–
61
–
–
61
–
61
Revaluation to fair value of other
investments
12
–
–
–
–
–
(4)
(4)
–
(4)
OCI of joint ventures and associates
12
–
–
–
2
(1)
1
2
–
2
Related tax movements
5
–
–
–
5
(1)
(4 3)
(39)
–
(39)
Total comprehensive income/(expense) for
the year
–
–
–
(14)
(2 27)
2 ,4 8 2
2 , 241
(8)
2, 2 33
Issue of ordinary shares
10
–
–
–
–
–
10
–
10
Redemption of C shares
20
–
–
1
–
–
(1)
–
–
–
Shares issued to employee share trust
–
–
–
–
–
(10)
(10)
–
(10)
Share-based payments – direct to equity
2
–
–
–
–
–
49
4 9
–
4 9
Dividends to NCI
–
–
–
–
–
–
–
(2)
(2)
Transactions with NCI
3
–
–
–
–
–
57
57
28
85
Related tax movements
–
–
–
–
–
22
22
–
22
Other changes in equity in the year
10
–
1
–
–
117
128
26
15 4
At 31 December 2023
1,6 84
1 ,012
167
12
63 4
(7, 1 9 0)
(3, 68 1)
52
(3,629)
1 At 31 December 2024, 106,066,831 ordinary shares with a net book value of £2 6m (2023: 52,912,406 ordinary shares with a net book value of £2 2m) were held for the purpose of
share-based payment plans and included in accumulated losses. During the year:
– 35,117,065 ordinary shares with a net book value of £14m (2023: 7,875,240 ordinary shares with a net book value of £15m) vested in share-based payment plans;
– the Company issued 88,200,000 (2023: 49,100,000) new ordinary shares to the Group’s share trust for its employee share-based payment plans with a net book value of £1 7m (2023:
£1 0m); and
– the Company acquired none (2023: none) of its ordinary shares via reinvestment of dividends received on its own shares and purchased 71,490 (2023: 284,850) 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 actual cost of vesting excluding those vesting from own shares and cash received on
share-based schemes
3 Relates to NCI investment received in the year in respect of Rolls-Royce SMR Limited
121
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies
The Company and the Group
Rolls-Royce Holdings plc (the ‘Company’) is a public company limited by shares incorporated under the Companies Act 2006 and domiciled in
England in the United Kingdom. The Consolidated Financial Statements of the Company for the year ended 31 December 2024 consist of the
audited consolidation of the Financial Statements of the Company and its subsidiaries (together referred to as the Group) together with the
Group’s interest in jointly controlled and associated entities.
Basis of preparation and statement of compliance
The Company has elected to prepare its individual Company Financial Statements under FRS 101 Reduced Disclosure Framework� They are set
out on pages 187 to 191 with the associated accounting policies from page 189.
The Consolidated Financial Statements have been prepared in accordance with UK adopted International Accounting Standards (IAS) in
conformity with the requirements of the Companies Act 2006 and interpretations issued by the IFRS Interpretations Committee (IFRS IC)
applicable to companies reporting under UK adopted IFRS.
The Consolidated Financial Statements have been prepared on a going concern basis as described on page 61. The historical cost basis has been
used except where IFRS require the revaluation of financial instruments to fair value and certain other assets and liabilities on an
alternative basis, most significantly post-retirement scheme obligations are valued on the basis required by IAS 19 Employee Benefits�
The Consolidated Financial Statements are presented in sterling which is the Company’s functional currency.
The preparation of the Consolidated Financial Statements requires management to make judgements and estimates that affect the statutory
amounts of assets and liabilities at the date of the Consolidated Financial Statements and the statutory amounts of revenue and expenses during
the reporting period. Actual future outcomes could differ from those estimates.
Going concern
The Directors have undertaken a comprehensive going concern review. In adopting the going concern basis for preparing these Consolidated
and Company Financial Statements, the Directors have undertaken a review of the Group’s cash flow forecasts and available liquidity, along with
consideration of possible risks and uncertainties over an 18-month period from the balance sheet date to June 2026. The Directors have
determined that the period to 30 June 2026 (‘the going concern period’) is an appropriate timeframe over which to assess going concern as it
considers the Group’s short- to medium-term cash flow forecasts and available liquidity. Recognising the challenges of reliably estimating and
forecasting the impact of external factors on the Group, the Directors have considered two forecasts in the assessment of going concern, along
with a likelihood assessment of these forecasts, being:
— base case, which reflects the Directors’ current expectations of future trading; and
— a downside forecast, which envisages severe but plausible downside risks.
Further details are given in the going concern review on page 61. After reviewing the current liquidity position and the cash flow forecasts
modelled under both the base case and downside forecast, the Directors consider that the Group has sufficient liquidity to continue in operational
existence over the going concern period to 30 June 2026 and are therefore satisfied that it is appropriate to adopt the going concern basis of
accounting in preparing the Consolidated Financial Statements.
Climate change
In preparing the Consolidated Financial Statements the Directors have considered the potential impact of climate change, particularly in the
context of the disclosures included in the 2024 Strategic Report that set out climate-related commitments, targets and the four pillars of the
Rolls-Royce energy transition strategy which are:
— decarbonising operations, facilities, product testing and business activities. This will be met through a combination of procuring clean energy,
reducing overall energy demand, and clean power generation. An estimate of the investment required to meet Scope 1 + 2 emission
improvements is included in the forecasts that support these Consolidated Financial Statements;
— enabling customers to operate their products in a way that is compatible with low or net zero carbon emissions. The Group is working with
customers to enable them to operate products in a way that is compatible with net zero emissions. This means further the advancing the
efficiency and environmental performance of the Group’s engine and technology portfolio and ensuring compatibility with sustainable fuels.
Within Power Systems, 80% of the Group’s portfolio is compatible with alternative and sustainable fuels. The Group has demonstrated that all
the commercial aero engines it produces are compatible for use with sustainable fuels and is also working with its armed forces customers,
such as the RAF, on the use of SAF blends;
—
delivering new products and solutions that can accelerate the global energy transition. This includes the development and deployment of
small modular reactors (SMRs) and, in Power Systems, battery energy storage solutions is a growth area. In 2024, research and
development (R&D) costs of £133m (2023: £137m) within New Markets included investment to successfully complete Step 2 of the Generic
Design Assessment (GDA) by the UK nuclear industry’s independent regulators and movement into the third and final step. Future investment
required to deliver these technologies is included in the forecasts that support the Consolidated Financial Statements; and by
—
supporting the necessary enabling environment, with public and policy support, to achieve collective climate goals. This involves actively
engaging with policy makers, regulators and others to advocate for the necessary policy and economic support we have identified.
122
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
Climate change continued
The climate change scenarios previously prepared to assess the viability of our business strategy, decarbonisation plans and approach to
managing climate-related risk have continued to develop over the last year as set out in our Strategic Review. The scenarios are used to help
assess the Group’s strategic resilience to climate change and the energy transition. Consideration is made of how each of them impacts: the life
of assets; future revenue projections; future profitability; and whether additional costs may occur. There remains inherent uncertainty around
how the scenarios will impact the Group. 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.
Based on the Taskforce for Climate-related Financial Disclosures (TCFD) recommendations, the Group assesses the potential impact of
climate-related risks which cover transition and physical risks and opportunities. The Group has identified four key transition risks (relating to
changing customer demand, changes in cost due to carbon pricing, changes in cost due to commodity price changes and change in investment
requirements) and three key physical risks (relating to facility disruption, supply chain disruption and impact on product performance) which
may arise from the energy transition. The transition risks are the most likely to have an impact on the Consolidated Financial Statements, as
exposure to physical risks will be greater in the longer term.
The key sources of estimation uncertainty at the balance sheet date are set out on page 125 and the Directors have considered the impact of
climate change on those estimates. The key assumptions used in this assessment are consistent with those used in the climate scenarios presented
in the Strategic Review. A summary of the assessment is set out below.
How reflected in the Financial Impact on impairment of Impact on UK deferred tax
Risk
Statements
Impact on Civil Aerospace LTSAs
non-financial assets asset recoverability
Changing Overall forecast demand is Forecast EFH are based on Given the level of Forecast EFH are based on
customer demand expected to be robust in each customer and market data headroom in the customer and market data
scenario, although product and therefore already programme intangible and therefore include the
mix may change with include the latest assets and Power Systems latest expectation of the
customer requirements. expectation of the impact of and Rolls-Royce impact of climate change
climate change on demand. Deutschland goodwill, the on demand. A sensitivity
A sensitivity disclosing the potential impact of a disclosing the impact of a
impact of a 1% change in change in customer 5% change in margin or
EFH forecasts over the demand does not indicate shop visits is disclosed on
remaining term of Civil LTSA any potential impact. page 130�
contracts is disclosed on
page 128�
Changes in costs The potential impact of The increase in the cost base Given the level of The forecast of probable
due to carbon carbon pricing has been of the current Civil LTSA headroom in the future taxable profits
pricing
1
and
estimated by applying contracts due to carbon and programme intangible reflects the increase in the
commodity price carbon prices to the forecast commodity prices is assets and Power Systems cost base that could arise
changes
2
emissions generated by the estimated to be around 1% and Rolls-Royce from carbon and commodity
Group and its supply chain. (2023: 1%) with the Deutschland goodwill, the prices consistent with the
This impact, together with incremental cost included in potential impact of the methodology applied for
that from estimated the cost to complete cost increases in the Civil Aerospace LTSA.
commodity prices under estimates that drive revenue scenarios does not Disclosed on page 130 is the
each scenario, have been recognition. Changes in indicate any potential impact of changing the
added/deducted to forecast estimates have not had a impact� proportion of cost increases
costs in the base forecasts. material impact on revenue The assessment has that can be passed onto
The analysis reflects that: catch-ups or contract loss considered each of the customers following the
decarbonisation activities provisions in the year (2023: Group’s climate scenarios. expiry of existing LTSAs.
will occur in both the Group not material).
and its supply chain; and that A sensitivity disclosing the
some supplier contracts impact of a 2% change in
offer protection from cost shop visit costs over the
increases in the short to remaining term of Civil LTSA
medium term where pricing contracts is disclosed on
is fixed or subject to capped page 128�
escalation clauses.
Change in Changing investment
No impact to existing LTSAs.
Impairment tests are
Given the UK deferred tax
investment requirements may arise due either: performed on a asset recoverability is
required to the introduction/ value in use basis and the largely dependent on Civil
acceleration of new investment associated with and Defence aerospace
technologies� new products is required markets, the increase in
Research is expensed and to be excluded; or have research and development
development costs sufficient headroom such expenditure required under
capitalised as incurred. that the estimated this scenario does not have
investment requirement a material impact.
is not significant.
1 Based on the IEA Net Zero by 2050 scenario ($71 per tonne of carbon in 2024 to $250 in 2050)
2 Commodity prices from the Oxford Economics, Global Climate Service and Databank
123
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Climate change continued
Items that may be impacted by climate-related risks, but which are not considered to be key areas of judgements or sources of estimation
uncertainty in the current financial year are outlined on below.
Useful lives of assets – The useful lives of property, plant and equipment and right-of-use assets could be reduced by climate-related matters,
for example, as a result of physical risks, obsolescence or legal restrictions. The change in useful lives would have a direct impact on the amount
of depreciation or amortisation recognised each year from the date of reassessment. The Directors’ review of useful lives has taken into
consideration the impacts of the Group’s decarbonisation strategy and has not had a material impact on the results for the year. The Directors
have also considered the remaining useful economics lives of material intangible assets, including the £2,001m and £632m capitalised
development spend associated with the Trent and business aviation programmes disclosed in note 9. Given the measures the Group is taking,
including demonstration that all the commercial aero-engines and 80% of the portfolio in Power Systems are compatible with alternative and
sustainable fuels, the Directors judge that no adjustment is required to the useful economic lives.
Inventory valuation – Climate-related matters may affect the value of inventories as a result of a decline in selling prices or could become
obsolete due to a reduction in demand. After consideration of the typical stock-turns of the inventory in relation to the rate of change in the
market the Directors consider that inventory is appropriately valued.
Recoverability of trade receivables and contract assets – The impact of climate-related matters could have an impact on the Group’s customers
in the future, especially those customers in the Civil Aerospace business. No material climate-related issues have arisen during the year that have
impacted the assessment of the recoverability of receivables. The Group’s expected credit loss (ECL) provision uses credit ratings which
inherently will include the market’s assessment of the climate change impact on credit risk of the counter parties. Given the maturity time of trade
receivables and the majority of contract assets, climate change is unlikely to cause a material increase on counter party credit risk in that time.
Share-based payments – The Group is committed to achieving net zero by 2050. The first phase of a sustainability strategic review was completed
during 2024 and the Group has committed to reduce the total Scope 1 + 2 greenhouse gas emissions from its facilities, operations and testing by
46% by the end of 2030 (against a baseline of 2019). This metric accounts for 10% of the long-term incentive plan for awards granted from 2025,
with performance measured against three-year cumulative targets.
Defined benefit pension plans – Climate-related risks could affect the financial position of defined benefit pension plans. As a result, this could
have implications on the expected return on plan assets and measurement of defined benefit liabilities in future years. The Trustee of the
Rolls-Royce UK Pension Fund meet the climate-related regulatory requirements. When making decisions about the plan, its analysis is carried
out in a way consistent with TCFD. The Trustee has set a net zero target for the plan assets by 2050. Having assessed the risks and opportunities
of climate change and considered the nature of the assets of the fund, climate change is unlikely to have a material impact on the position in the
Consolidated Financial Statements.
Going concern – Given the short-term nature of the Group’s going concern assessment, the impact of climate change does not have a significant
impact. The Directors have considered the level of liquidity available, and the potential impact of the climate change risks, in making their
assessment�
Presentation of underlying results
The Group measures financial performance on an underlying basis and discloses this information as an alternative performance measure (APM).
This is consistent with the way that financial performance is measured by the Directors and reported to the Board in accordance with IFRS 8
Operating Segments. The Group believes this is the most appropriate basis to measure the in-year performance, as underlying results reflect
the substance of trading activity, including the impact of the Group’s foreign exchange forward contracts, which economically hedge net foreign
currency cash flows at predetermined exchange rates. In addition, underlying results exclude the accounting impact of acquisition accounting
and business disposals, impairment charges where the reasons are outside of normal operating activities, exceptional items, and certain other
items which are market driven and outside of the control of management. Further details are given in note 2. A reconciliation of APMs to the
statutory equivalent is provided on pages 215 to 219.
Revisions to IFRS applicable in 2024
Supplier Finance Arrangements
New disclosure requirements resulting from amendments to IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures relating
to Supplier Finance Arrangements (SFAs) were effective from 1 January 2024. The objective of the new amendments is to provide enhanced
information about SFAs that enables investors to assess the effects on an entity’s liabilities, cash flows and its exposure to liquidity risk. The
Group’s suppliers have access to a supply chain financing (SCF) programme that is considered to be within the scope of the Standard’s SFA
definition. The new prescriptive disclosure requirements have necessitated some additional information being disclosed on page 164 in relation
to the value of trade payables that were within the scope of such arrangements. This has been presented alongside the value of received
payments which suppliers had drawn, this being information which the Group has already disclosed in its Annual Report.
Other
There are no other new standards or interpretations issued by the International Accounting Standards Board (IASB) that had a significant impact
on these Consolidated Financial Statements.
124
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 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 judgements and key sources of estimation uncertainty at the balance sheet date,
that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year, are
summarised below. Further details, together with sensitivities for key sources of estimation uncertainty where appropriate and practicable, are
included within the significant accounting policies section of this note.
Area
Key judgements
Key sources of estimation uncertainty
Page ref
Revenue
—
Whether Civil Aerospace OE and aftermarket contracts
—
Estimates of future revenue, including customer
127
recognition and should be combined. pricing, and costs of long-term contractual
contract assets — How performance on long-term aftermarket contracts arrangements, including the impact of climate
and liabilities should be measured. change�
—
Whether long-term aftermarket contracts contain a
significant financing component.
— Whether any costs should be treated as wastage.
—
Whether the Civil Aerospace LTSA contracts are
warranty style contacts entered into in connection with
OE ales and therefore can be accounted for under IFRS 15
Revenue from Contracts with Customers�
— Whether sales of spare engines to joint ventures are at
fair value.
—
When revenue should be recognised in relation to spare
engine sales�
Risk and revenue
— Determination of the nature of entry fees received.
129
sharing
arrangements
(RRSAs)
Taxation
—
Estimates necessary to assess whether it is probable
130
that sufficient suitable taxable profits will arise in
the UK to utilise the deferred tax assets recognised.
Research and
—
Determination of the point in time where costs incurred
132
development on an internal programme development meet the
criteria for capitalisation.
—
Determination of the basis for amortising capitalised
development costs.
Leases
— Determination of the lease term.
133
Impairment of
—
Determination of cash-generating units for assessing
134
non-current impairment of goodwill.
assets
Provisions
— Whether any costs should be treated as wastage.
—
Estimates of the time and cost to incorporate
135
—
Whether the criteria to recognise a transformation
required modified parts into the fleet to resolve
and restructuring provision has been met. technical issues on certain programmes (which could
be exacerbated by prolonged supply chain
challenges) and the implications of this on forecast
future costs when assessing onerous contracts.
— Estimates of the future revenues and costs to fulfil
onerous contracts.
—
Assumptions implicit within the calculation of
discount rate.
Post-retirement
—
Estimates of the assumptions for valuing the net
136
benefits defined benefit obligation.
Material accounting policies
The Group’s significant accounting policies are set out on pages 125 to 137. These accounting policies have been applied consistently to all
periods presented in these Consolidated Financial Statements.
Basis of consolidation
The Consolidated Financial Statements include the Company Financial Statements and its subsidiary undertakings, together with the Group’s
share of the results in joint arrangements and associates made up to 31 December.
A subsidiary is an entity controlled by the Company. Control exists when the Company has power over an entity, exposure to variable returns
from its involvement with an entity and the ability to use its power over an entity so as to affect the Company’s returns. Subsidiaries are
consolidated in accordance with IFRS 10 Consolidated Financial Statements�
125
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Basis of consolidation continued
A joint arrangement is an entity in which the Group holds a long-term interest and which is jointly controlled by the Group and one or more other
investors under a contractual arrangement. Joint arrangements may be either joint ventures or joint operations. Joint ventures are accounted
for using the equity method of accounting and joint operations are accounted for using proportionate accounting.
An associate is an entity that is neither a subsidiary nor a joint arrangement, in which the Group holds a long-term interest and where the Group
has a significant influence. The results of associates are accounted for using the equity method of accounting.
All intra-group transactions, balances, income and expenses are eliminated on consolidation. Adjustments are made to eliminate the profit or
loss arising on transactions with joint arrangements and associates to the extent of the Group’s interest in the entity. Transactions with
non-controlling interests are recorded directly in equity.
Any subsidiary undertaking, joint arrangement or associate sold or acquired during the year are included up to, or from, the date of change of
control. Details of transactions in the year are set out in note 27.
Revenue recognition and contract assets and liabilities
Revenue recognised comprises sales to the Group’s customers after discounts and amounts payable to customers. Revenue excludes value added
taxes. The transaction price of a contract is typically clearly stated within the contract, although the absolute amount may be dependent on
escalation indices and long-term contracts that require the key estimates highlighted below to be made. Refund liabilities, where sales are made
with a right of return, are not typical in the Group’s contracts. Where they do exist, and consideration has been received, a portion based on an
assessment of the expected refund liability is recognised within other payables. The Group has elected to use the practical expedient not to
adjust revenue for the effect of financing components where the expectation is that the period between the transfer of goods and services to
customers and the receipt of payment is less than a year. Consideration is received in the form of deposits and payments for completion of
milestones or performance obligations. LTSA cash receipts are typically received based on EFHs.
Sales of standard OE, spare parts and time and material (T&M) overhaul services are generally recognised on transfer of control to the customer.
This is generally on delivery to the customer, unless the specific contractual terms indicate a different point. The Directors consider whether
there is a need to constrain the amount of revenue to be recognised on delivery based on the contractual position and any relevant facts,
however, this is not typically required.
Sales of OE and services that are specifically designed for the contract (most significantly in the Defence business) are recognised by reference
to the progress towards completion of the performance obligation, using the cost method described in the key judgements, provided the outcome
of contracts can be assessed with reasonable certainty.
The Group generates a significant portion of its revenue on aftermarket arrangements arising from the installed OE fleet. As a consequence, in
particular in the Civil Aerospace large engine business, the Group will often agree contractual prices for OE deliveries that take into account
the anticipated aftermarket arrangements. Sometimes this may result in losses being incurred on OE. As described in the key judgements, these
contracts are not combined. The consideration in the OE contract is therefore allocated to OE performance obligations and the consideration
in the aftermarket contract to aftermarket performance obligations.
Key areas of the accounting policy are:
— Future variable revenue from long-term contracts is constrained to take account of the risk of non-recovery of resulting contract balances
from reduced utilisation e.g. EFHs, based on historical forecasting experience and the risk of aircraft being parked by the customer.
—
A significant amount of revenue and cost related to long-term contract accounting is denominated in currencies other than that of the relevant
Group undertaking, most significantly USD transactions in sterling and euro denominated undertakings. These are translated at estimated
long-term exchange rates.
—
The assessment of stage of completion is generally measured for each contract. However, in certain cases, such as for CorporateCare
agreements, where there are many contracts covering aftermarket services each for a small number of engines, the Group accounts for a
portfolio of contracts together, as the effect on the Consolidated Financial Statements would not differ materially from applying the standard
to the individual contracts in the portfolio. When accounting for a portfolio of LTSAs, the Group uses estimates and assumptions that reflect
the size and composition of the portfolio.
—
A contract asset/liability is recognised where payment is received in arrears/advance of the revenue recognised in meeting performance
obligations.
— Contract modifications of LTSAs can be accounted for as separate contracts, termination of the existing contract and the creation of a new
contract, or as part of the existing contract. The treatment is dependent on whether the change in scope is because of the addition of
promised goods or services that are distinct and whether the price increases by an amount that reflects their standalone selling prices.
— Where material, wastage costs (see key judgements on page 127) are recorded as an expense and excluded from the measure of progress of
LTSA contracts.
—
The Group recognises a liability for their obligation to repurchase parts it has sold to the maintenance, repair and overhaul bases who overhaul
the Group’s customers’ engines.
If the expected costs to fulfil a contract exceed the expected revenue, a contract loss provision is recognised for the excess costs.
The Group pays participation fees to airframe manufacturers, its customers for OE, on certain programmes. Amounts paid are initially treated as
contract assets and subsequently charged as a reduction to the OE revenue when the engines are transferred to the customer.
The Group has elected to use the practical expedient to expense as incurred any incremental costs of obtaining or fulfilling a contract if the
amortisation period of an asset created would have been one year or less. Where costs to obtain a contract are recognised in the balance sheet,
they are amortised over the performance of the related contract (ten to 36 years).
126
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
Key judgement – Whether Civil Aerospace OE and aftermarket contracts should be combined
In the Civil Aerospace business, OE contracts for the sale of engines to be installed on new aircraft are with the airframers, while the contracts
to provide spare engines and aftermarket goods and services are with the aircraft operators, although there may be interdependencies
between them. IFRS 15 Revenue from Contracts with Customers includes guidance on the combination of contracts, in particular that
contracts with unrelated parties should not be combined. Notwithstanding the interdependencies, the Directors consider that the engine
contract should be considered separately from the aftermarket contract. In making this judgement, they also took account of industry
practice.
Key judgement – How performance on long-term aftermarket contracts should be measured
The Group generates a significant proportion of its revenue from aftermarket arrangements. These aftermarket contracts, such as TotalCare
and CorporateCare agreements in the Civil Aerospace business, cover a range of services and generally have contractual terms covering
more than one year. Under these contracts, the Group’s primary obligation is to maintain customers’ engines in an operational condition.
This is achieved by undertaking various activities, such as maintenance, repair and overhaul, and engine monitoring over the period of the
contract. Revenue on these contracts is recognised over the period of the contract and the basis for measuring progress is a matter of
judgement. The Directors consider that the stage of completion of the contract is best measured by using the actual costs incurred to date
compared to the estimated costs to complete the performance obligations, as this reflects the extent of completion of the activities to be
performed.
Key judgement – Whether long-term aftermarket contracts contain a significant financing component
Long-term aftermarket contracts typically cover a period of eight to 15 years. Their pricing is the subject of negotiation with individual
customers under competitive circumstances. It is the Directors’ judgement that the consideration received approximates to the cash selling
price and any timing difference between consideration being received and the supply of goods and services is typical of the industry and
arises for reasons other than to provide financing. The customers typically pay on an ‘as used’ basis (e.g. USD/EFH) which reflects the wear
and tear of the engine as it flies and aligns to the customer’s own revenue streams. An adjustment to the transaction price is therefore not
required.
Key judgement – Whether any costs should be treated as wastage
In rare circumstances, the Group may incur costs of wasted material, labour or other resources to fulfil a contract where the level of cost
was not reflected in the contract price. The identification of such costs is a matter of judgement and would only be expected to arise where
there has been a series of abnormal events which give rise to a significant level of cost of a nature that the Group would not expect to incur
and hence is not reflected in the contract price. Examples include technical issues that: require resolution to meet regulatory requirements;
have a wide-ranging impact across a product type; and cause significant operational disruption to customers. Similarly, in these rare
circumstances, significant disruption costs to support customers resulting from the actual performance of a delivered good or service may
be treated as a wastage cost. Provision is made for any costs identified as wastage when the obligation to incur them arises – see note 21.
Key judgement – Whether the Civil Aerospace LTSA contracts are warranty style contacts entered into in connection with OE sales and
therefore can be accounted for under IFRS 15 Revenue from Contracts with Customers
The Group has considered whether these arrangements are insurance contracts as defined in IFRS 17 Insurance Contracts. While they may
transfer an element of insurance risk, they relate to warranty and service type agreements that are entered into in connection with the
Group’s sales of its goods or services and therefore continue to be accounted for under the existing revenue and provisions standards. The
Directors have judged that such arrangements entered into after the original equipment sale remain sufficiently related to the sale of the
Group’s goods and services to allow the contracts to continue to be measured under IFRS 15 Revenue from Contracts with Customers and
IAS 37 Provisions, Contingent Liabilities and Contingent Assets�
Key judgement – Whether sales of spare engines to joint ventures are at fair value
The Civil Aerospace business maintains a pool of spare engines to support its customers. Some of these engines are sold to, and held by,
joint venture companies. The assessment of whether the sales price reflects fair value is a key judgement. The Group considers that based
upon the terms and conditions of the sales, and by comparison to the sales price of spare engines to other third parties, the sales made to
joint ventures reflect the fair value of the goods sold. See note 26 for the value of sales to joint ventures during the year.
Key judgement – When revenue should be recognised in relation to spare engine sales
Revenue is recognised at the point in time when a customer obtains control of a spare engine. The customer could be a related party, an
external operator or a spare engine service provider. Depending on the contractual arrangements, judgement is required on when the
Group relinquishes control of spare engines and, therefore, when the revenue is recognised. The point of control passing has been
concluded to correspond to the point of legal sale, even for instances where the customer is contracted to provide some future spare engine
capacity to the Group to support its installed engine base. In such cases, the customer has responsibility for generating revenue from the
engines and exposure to periods of non-utilisation; exposure to risk of damage or loss, risk from residual value movements, and will determine
if and when profits will be made from disposal. The spare engine capacity that will be made available to the Group in the future does not
consist of identified assets and the provider retains a substantive right to substitute the asset through the Group’s period of use. It is,
therefore, appropriate to recognise revenue from the sale of the spare engines at the point that title transfers. During 2024, of the total 57
(2023: 53) large spare engine sales delivered, 20 (2023: 27) engines were sold to customers where contractual arrangement allows for some
future spare engine capacity to be used by the Group. These sales contributed £399m (2023: £578m) to revenue for the year.
127
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Key estimate – Estimates of future revenue, including customer pricing, and costs of long-term contractual arrangements, including the
impact of climate change
The Group has long-term contracts that fall into different accounting periods and which can extend over significant periods (generally up
to 25 years), the most significant of these are LTSAs in the Civil Aerospace business, with contracts typically covering a period of eight to
15 years. The estimated revenue and costs are inherently imprecise and significant estimates are required to assess: EFHs, time on wing and
other operating parameters; the pattern of future maintenance activity and the costs to be incurred; lifecycle cost improvements over the
term of the contracts; and escalation of revenue and costs (that includes the impact of inflation). The impact of climate change on EFHs and
costs is also considered when making these estimates. Industry and customer data on expected levels of utilisation is included in the forecasts
used. Across the length of the current Civil Aerospace LTSA contracts, allowance has been made for around a 1% (2023: 1%) projected cost
increase resulting from carbon pricing and commodity price changes.
The sensitivities below demonstrate how changes in assumptions (including as a result of climate change) could impact the level of revenue
recognised were assumptions to change. The Directors believe that the estimates used to prepare the Consolidated Financial Statements
take account of the inherent uncertainties, constraining the expected level of revenue as appropriate.
Estimates of future LTSA revenue within Civil Aerospace are based upon future EFH forecasts. Finally, many of the revenues and costs are
denominated in currencies other than that of the relevant group undertaking. These are translated at an estimated long-term exchange
rate, based on historical trends and economic forecasts.
During the year, changes to the estimate in relation to the Civil Aerospace LTSA contracts resulted in favourable catch-up adjustments to
revenue of £311m (2023: adverse catch-up adjustment of £104m).
Based upon the stage of completion of all LTSA contracts within Civil Aerospace as at 31 December 2024, the following reasonably possible
changes in estimates would result in catch-up adjustments being recognised in the period in which the estimates change (at underlying
rates):
—
A change in forecast EFHs of 1% over the remaining term of the contracts would impact LTSA income and to a lesser extent costs,
resulting in an in-year impact of around £20m. This would be expected to be seen as a catch-up change in revenue or, to the extent it
impacts onerous contracts, within cost of sales.
— A 2% increase or decrease in our pricing to customers over the life of the contracts would lead to a revenue catch-up adjustment in the
next 12 months of around £340m.
— A 2% increase or decrease in shop visit costs over the life of the contracts would lead to a revenue catch-up adjustment in the next 12
months of around £90m.
Risk and revenue sharing arrangements (RRSAs)
Cash entry fees received are initially deferred on the balance sheet as deferred receipts from RRSA workshare partners within trade payables
and other liabilities. The cash entry fee is a transaction with a supplier and is recognised as a reduction in cost of sales incurred. Individual
programme amounts are allocated pro rata to the estimated number of units to be produced. Amortisation commences as each unit is delivered
and then recognised on a 15-year straight-line basis.
The payments to suppliers of their shares of the programme cash flows for their production components are charged to cost of sales when OE
sales are recognised or as LTSA costs are incurred. These prepayments are initially recognised within trade receivables and other assets.
The Group also has arrangements with third parties who invest in a programme and receive a return based on its performance, but do not
undertake development work or supply parts. Such arrangements (financial RRSAs) are financial instruments as defined by IAS 32 Financial
Instruments: Presentation and are accounted for using the amortised cost method.
128
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
Key judgement – Determination of the nature of entry fees received
RRSAs with key suppliers (workshare partners) are a feature of the civil aviation industry. Under these contractual arrangements, the key
commercial objectives are that: (i) during the development phase the workshare partner shares in the risks of developing an engine by
performing its own development work, providing development parts, and paying a non-refundable cash entry fee; and (ii) during the
production phase the workshare partner supplies components in return for a share of the programme cash flows as a ‘life of type’ supplier
(i.e. as long as the engine remains in service).
The non-refundable cash entry fee is considered to be one element of a long-term supply agreement. These receipts are deferred on the
balance sheet and recognised against the cost of sales over the estimated number of units to be delivered on a similar basis to the
amortisation of development costs – see page 132.
Government grants
Government grants received are varied in nature and are recognised in the income statement so as to match them with the related expenses that
they are intended to compensate. Where grants are received in advance of the related expenses, they are initially recognised as liabilities within
trade payables and other liabilities and released to match the related expenditure. Non-monetary grants are recognised at fair value.
Interest
Interest receivable/payable is credited/charged to the income statement using the effective interest method. Where borrowing costs are
attributable to the acquisition, construction or production of a qualifying asset, such costs are capitalised as part of the specific asset.
Taxation
The tax charge/credit on the profit or loss for the year comprises current and deferred tax:
—
Current tax is the expected tax payable for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous years.
— Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of the
assets and liabilities for financial reporting purposes and the amounts used for tax purposes and is calculated using the enacted or
substantively enacted rates that are expected to apply when the asset or liability is settled. In the UK, the deferred tax liability on the pension
scheme surplus is recognised consistently with the basis for recognising the surplus i.e. at the rate applicable to refunds from a trust.
Tax is charged or credited to the income statement or OCI as appropriate, except when it relates to items credited or charged directly to equity
in which case the tax is also dealt with in equity.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint arrangements, except
where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in
the foreseeable future. Deferred tax is not recognised on taxable temporary differences arising on the initial recognition of goodwill or for
temporary differences arising from the initial recognition of assets and liabilities in a transaction that is not a business combination and that
affects neither accounting nor taxable profit.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profits, which include the reversal of taxable
temporary differences, will be available against which the assets can be utilised. Further details on the Group’s tax position can be found on
pages 145 to 148�
129
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Taxation continued
Key estimate – Estimates necessary to assess whether it is probable that sufficient suitable taxable profits will arise in the UK to utilise the
deferred tax assets recognised
Deferred tax assets are only recognised to the extent it is probable that future taxable profits will be available, against which the deductible
temporary difference can be utilised. On this basis a deferred tax asset of £629m is not recognised in respect of UK tax losses. Further details
are included in note 5.
In addition to taking into account a severe but plausible downside forecast (see below), the climate-related estimates and assumptions (set
out on pages 122 to 124) have also been considered when assessing the recoverability of the deferred tax assets. Recognising the longer
terms over which these assets will be recovered, the Group has considered the risk that regulatory changes could materially impact demand
for our products and shifting investment focus towards more sustainable products and solutions. The climate scenarios prepared do not
indicate a significant deterioration in demand or profitability for Civil Aerospace programmes given that all commercial aero-engines are
compatible with sustainable fuels.
While carbon and commodity pricing may put pressure on costs, decarbonisation and new supplier and customer contracts offer the
opportunity to receive value for more efficient and sustainable products.
Macro-economic factors continue to result in uncertainty across the civil aviation industry in particular in respect of prolonged supply chain
challenges. As explained in note 5, a 25% probability of there being a severe but plausible downside forecast in relation to the civil aviation
industry has been taken into account in the assessment of the recovery of the UK deferred tax assets.
The estimates take account of the inherent uncertainties constraining the expected level of profit as appropriate. Changes in these estimates
will affect future profits and, therefore, the recoverability of the deferred tax assets. The following sensitivities have been modelled to
demonstrate the impact of changes in assumptions on the recoverability of deferred tax assets.
— A 5% change in margin in the main Civil Aerospace large engine programmes.
— A 5% change in the number of shop visits driven by EFHs.
— Assumed future cost increases from climate change expected to pass through to customers at 100% are restricted to 90% pass through.
All of these could be driven by a number of factors, including ongoing supply chain challenges, the impact of climate change as explained
on pages 122 to 124 and changes in foreign exchange rates.
A 5% change in margin or shop visits (which could be driven by fewer EFHs as a result of the factors as set out above) would result in an
increase/decrease in the deferred tax asset of around £110m.
If only 90% of assumed future cost increases from climate change are passed on to customers, this would result in a decrease in the deferred
tax asset of around £10m, and if carbon prices were to double, this would be £70m.
130
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
Foreign currency translation
Transactions denominated in currencies other than the functional currency of the transacting group undertaking are translated into the functional
currency at the average monthly exchange rate when the transaction occurs. Monetary assets and liabilities denominated in foreign currencies
are translated into the relevant functional currency at the rate prevailing at the year end. Exchange differences arising on foreign exchange
transactions and the retranslation of monetary assets and liabilities into functional currencies at the rate prevailing at the year end are included
in profit/(loss) before taxation.
The trading results of Group undertakings are translated into sterling at the average exchange rates for the year. The assets and liabilities of
overseas undertakings, including goodwill and fair value adjustments arising on acquisition, are translated at the exchange rates prevailing at
the year end. Exchange adjustments arising from the retranslation of the opening net assets, and from the translation of the profits or losses at
average rates, are recognised in OCI.
Discontinued operations and business disposals
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 income statement.
Assets and businesses are classified as held for sale when their carrying amounts will be recovered through sale rather than through
continuing use.
Financial instruments – Classification and measurement
Financial assets primarily include trade receivables and other non-derivative financial assets, cash and cash equivalents, short-term investments,
derivatives (foreign exchange, commodity and interest rate contracts), and listed and unlisted investments.
— Trade receivables and other assets are classified either as held to collect and measured at amortised cost, or as held to collect and sell and
measured at fair value, with movements in fair value recognised through other comprehensive income (FVOCI). The Group may sell trade
receivables due from certain customers before the due date. Any trade receivables from such customers that are not sold at the reporting
date are classified as ‘held to collect and sell’.
— Cash and cash equivalents (consisting of balances with banks and other financial institutions, money-market funds, short-term deposits) and
short-term investments are subject to low market risk. Cash balances, short-term deposits (with a maturity of primarily three months or less)
and short-term investments are measured at amortised cost. Money market funds are measured at fair value, with movements in fair value
recognised in the income statement as a profit or loss (FVPL).
— Derivatives and unlisted investments are measured at FVPL. The Company has elected to measure its listed investments at FVOCI.
Financial liabilities primarily consist of trade payables and other non-derivative financial liabilities, borrowings, derivatives, financial RRSAs and
C Shares�
— Derivatives are classified and measured at FVPL.
— All other financial liabilities are classified and measured at amortised cost.
Financial instruments – Impairment of financial assets and contract assets
IFRS 9 Financial Instruments sets out the basis for the accounting of ECLs on financial assets and contract assets resulting from transactions within
the scope of IFRS 15 Revenue from Contracts with Customers. The Group has adopted the simplified approach to provide for ECLs, measuring the
loss allowance at a probability weighted amount that considers reasonable and supportable information about past events, current conditions and
forecasts of future economic conditions of customers. These are incorporated in the simplified model adopted by using credit ratings which are
publicly available, or through internal risk assessments derived using the customer’s latest available financial information. The ECLs are updated at
each reporting date to reflect changes in credit risk since initial recognition. ECLs are calculated for all financial assets in scope, regardless of
whether or not they are overdue.
Financial instruments – Hedge accounting
Forward foreign exchange contracts and commodity swaps (derivative financial instruments) are held to manage the cash flow exposures of
forecast transactions denominated in foreign currencies or in commodities respectively. Derivative financial instruments qualify for hedge
accounting when: (i) there is a formal designation and documentation of the hedging relationship and the Group’s risk management objective
and strategy for undertaking the hedge at the inception of the hedge; and (ii) the hedge is expected to be effective. In general, the Group has
chosen to not apply hedge accounting in respect of these exposures.
The Group economically hedges the fair value and cash flow exposures of its borrowings. Cross-currency interest rate swaps are held to manage
the fair value or cash flow exposures of borrowings denominated in foreign currencies and are designated as fair value hedges or cash flow
hedges as appropriate. Interest rate swaps are held to manage the interest rate exposures of fixed and floating rate borrowings and may be
designated as fair value hedges or cash flow hedges as appropriate. If the swaps are not designated as fair value or cash flow hedges, the
economic effect is included in the underlying results – see note 2.
Changes in the fair values of derivatives that are designated as fair value hedges are recognised directly in the income statement. The fair value
changes of effective cash flow hedge derivatives are recognised in OCI and subsequently recycled to the income statement in the same period
or periods during which the hedged cash flows affect profit or loss. Any ineffectiveness in the hedging relationship is included in the income
statement�
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Financial instruments – Hedge accounting continued
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge
accounting. At that time, for cash flow hedges and, if the forecast transaction remains probable, any net cumulative gain or loss on the hedging
instrument recognised in the Statement of Changes in Equity (SOCIE) is retained until the forecast transaction occurs. If a hedged transaction
is no longer expected to occur, the net cumulative gain or loss is recycled to the income statement.
Business combinations and goodwill
Goodwill recognised represents the excess of the fair value of the purchase consideration over the fair value to the Group of the net of the
identifiable assets acquired and the liabilities assumed. On transition to IFRS on 1 January 2004, business combinations were not retrospectively
adjusted to comply with UK-adopted International Accounting Standards and goodwill was recognised based on the carrying value under the
previous accounting policies. Goodwill, in respect of the acquisition of a subsidiary, is recognised as an intangible asset. Goodwill arising on the
acquisition of joint arrangements and associates is included in the carrying value of the investment.
Customer relationships
The fair value of customer relationships recognised as a result of a business combination relate to the acquired company’s established
relationships with its existing customers that result in repeat purchases and customer loyalty. Amortisation is charged on a straight-line basis
over its useful economic life, up to a maximum of 15 years.
Certification costs
Costs incurred in respect of meeting regulatory certification requirements for new Civil Aerospace aero-engine/aircraft combinations, including
payments made to airframe manufacturers for this, are recognised as intangible assets to the extent that they can be recovered out of future
sales. They are charged to the income statement over the programme life. Individual programme assets are allocated pro rata to the estimated
number of units to be produced. Amortisation commences as each unit is delivered and then charged on a 15-year straight-line basis.
Research and development
Expenditure incurred on research and development is distinguished as relating either to a research phase or to a development phase. All research
phase expenditure is charged to the income statement. Development expenditure is recognised as an internally generated intangible asset
(programme asset) only if it meets strict criteria, relating in particular to technical feasibility and generation of future economic benefits. More
specifically, development costs are capitalised from the point at which the following conditions have been met:
— the technical feasibility of completing the programme and the intention and ability (availability of technical, financial and other resources) to
complete the programme asset and use or sell it;
— the probability that future economic benefits will flow from the programme asset; and
— the ability to measure reliably the expenditure attributable to the programme asset during its development.
Capitalisation continues until the point at which the programme asset meets its originally contracted technical specification (defined internally
as the point at which the asset is capable of operating in the manner intended by the Directors). Subsequent expenditure is capitalised where it
enhances the functionality of the programme asset and demonstrably generates an enhanced economic benefit to the Group. All other
subsequent expenditure on programme assets is expensed as incurred.
Individual programme assets are allocated pro rata to the estimated number of units to be produced. Amortisation commences as each unit is
delivered and then charged on a 15-year straight-line basis. In accordance with IAS 38 Intangible Assets, the basis on which programme assets
are amortised is assessed annually.
Key judgement – Determination of the point in time when costs incurred on an internal programme development meet the criteria for
capitalisation
The Group incurs significant research and development expenditure in respect of various development programmes. Determining when
capitalisation should commence and cease is a key judgement, as is the determination of when subsequent expenditure on the programme
assets should be capitalised. During the year, £263m (2023: £192m) of development expenditure was capitalised.
Within the Group there are established processes in place e.g., the Product Introduction and Lifecycle Management process (PILM), to
consider technical feasibility, commercial viability and financial assessment of the programme at certain milestones. When these are met,
development expenditure is capitalised. Prior to this, expenditure is expensed as incurred.
The Group continues to invest in new technologies as a result of its decarbonisation commitments. As these are new technologies there is
a higher level of uncertainty over potential outcomes and, therefore, this could impact the level of expenditure that is capitalised or
recognised in the income statement in future years. During 2024, no development costs incurred within New Markets were capitalised.
Subsequent expenditure after entry into service which enhances the performance of the engine and the economic benefit to the Group is
capitalised. This expenditure is referred to as enhanced performance and is governed by the PILM process referred to above. All other
development costs are expensed as incurred.
Key judgement – Determination of the basis for amortising capitalised development costs
The economic benefits of the development costs are primarily those cash inflows arising from LTSAs, which are expected to be relatively
consistent for each engine within a programme. Amortisation of development costs is recognised on a straight-line basis over the estimated
period of operation of the engine by its initial operator.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
Software
Software that is not specific to an item of property, plant and equipment is classified as an intangible asset, recognised at its acquisition cost and
amortised on a straight-line basis over its useful economic life, up to a maximum of ten years. The amortisation period of software assets is reviewed
annually. The cost of internally developed software includes direct labour and an appropriate proportion of overheads.
Other intangible assets
These include intangible assets arising on acquisition of businesses, such as technology which is amortised on a straight-line basis over a maximum
of 15 years and trademarks which are not amortised. They also include the costs incurred testing and analysing engines with the longest time in
service (fleet leader engines) to gather technical knowledge on engine endurance, which are amortised on a straight-line basis over a maximum
of 15 years.
Property, plant and equipment
Property, plant and equipment are stated at acquisition cost less accumulated depreciation and any provision for impairment in value. The cost
of self-constructed assets includes the cost of materials, direct labour, an appropriate proportion of overheads and, where appropriate, interest.
Depreciation is provided on a straight-line basis to write off the cost, less the estimated residual value, of property, plant and equipment over
their estimated useful lives. No depreciation is recorded on assets in the course of construction. Estimated useful lives are reassessed annually
and are as follows:
— Land and buildings, as advised by the Group’s professional advisers:
• freehold buildings – three to 50 years (average 24 years); and
• no depreciation is provided on freehold land.
— Plant and equipment – two to 27 years (average 11 years).
— Aircraft and engines – five to 20 years (average 17 years).
Leases
Assets and liabilities arising from a lease are initially measured on a present value basis.
Lease liabilities include the net present value of the following lease payments:
— fixed payments less any lease incentive receivable;
— variable lease payments that are based on an index or a rate;
— amounts expected to be payable by the Group under residual value guarantees;
— the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and
— payments of penalties for termination of the lease, if the lease term reflects the Group exercising that option.
Where leases commenced after the initial IFRS 16 Leases transition date, the lease payments are discounted using the interest rate implicit in the
lease. If that rate cannot be determined, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to
borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions. Where
appropriate, lease liabilities are revalued at each reporting date using the spot exchange rate.
Right-of-use assets are measured at cost comprising the following:
— the amount of the initial measurement of lease liability or a revaluation of the liability;
— any lease payments made at or before the commencement date less any lease incentives received;
— any initial direct costs; and
— restoration costs.
Each right-of-use asset is depreciated over the shorter of its useful economic life and the lease term on a straight-line basis unless the lease is
expected to transfer ownership of the underlying asset to the Group, in which case the asset is depreciated to the end of the useful life of the
asset�
Short-term leases are leases with a lease term of 12 months or less. Payments associated with short-term leases and low-value leases are
recognised on a straight-line basis as an expense in the income statement.
Key judgement – Determination of lease term
In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension
option, or not exercise a termination option. Extension options (or periods after termination) are only included in the lease term if the lease
is reasonably certain to be extended (or not terminated). Certain land and building leases have renewal options although none due in the
next 12 months would have a material impact. Other renewals are evenly spread between 2028 to 2033 and then post 2038. The Group
reviews its judgements on lease terms annually, including the operational significance of the site, especially where utilised for
manufacturing activities.
133
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Impairment of non-current assets
Impairment of non-current assets is considered in accordance with IAS 36 Impairment of Assets. Where the asset does not generate cash flows
that are independent of other assets, impairment is considered for the cash-generating unit (CGU) to which the asset belongs. Goodwill,
indefinite life intangible assets and intangible assets not yet available for use are tested for impairment annually. Other intangible assets
(including programme-related intangible assets), property, plant and equipment, right-of-use assets and investments are assessed for any
indications of impairment annually. If any indication of impairment is identified, an impairment test is performed to estimate the
recoverable amount.
If the recoverable amount of an asset (or CGU) is estimated to be below the carrying value, the carrying value is reduced to the recoverable
amount and the impairment loss is recognised as an expense. The recoverable amount is the higher of value in use or fair value less costs of
disposal. The value in use is the present value of future cash flows using a pre-tax discount rate that reflects the time value of money and the risk
specific to the asset (or CGU). Fair value less costs of disposal (FVLCOD) reflects market inputs or inputs based on market evidence if readily
available. If these inputs are not readily available, the fair value is estimated by discounting future cash flows modified for market participants
views. The relevant local statutory tax rates have been applied in calculating post-tax to pre-tax discount rates.
Key judgement – Determination of CGUs for assessing impairment of goodwill
The Group conducts impairment reviews at the CGU level. As permitted by IAS 36 Impairment of Assets, impairment reviews for goodwill
are performed at the groups of CGUs level, representing the lowest level at which the Group monitors goodwill for internal management
purposes and no higher than the Group’s operating segments. The main CGUs for which goodwill impairment reviews have been performed
are Rolls-Royce Deutschland Ltd & Co KG and at an aggregated Rolls-Royce Power Systems AG level.
Inventories
Inventories are valued on a first-in, first-out basis, at the lower of cost and net realisable value. Cost comprises direct materials and, where
applicable, direct labour costs and those direct and indirect overheads, including depreciation of property, plant and equipment, that have been
incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling prices less all
estimated costs of completion and costs to be incurred in marketing, selling and distribution. All inventories are classified as current as it is
expected that they will be used in the Group’s operating cycle, regardless of whether this is expected to be within 12 months of the balance
sheet date.
Cash and cash equivalents
Cash and cash equivalents include cash at bank and in hand, investments in money-market funds and short-term deposits with a maturity of three
months or less on inception. The Group considers overdrafts (repayable on demand) 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. Where the Group operates pooled banking
arrangements across multiple accounts, these are presented on a net basis when it has both a legal right and intention to settle the balances on
a net basis�
The Group’s suppliers have access to a supply chain financing (SCF) programme through partnership with banks. This is to enable smaller
suppliers, including joint ventures (90-day standard payment terms), who are on our standard 75 day or more payment terms to receive their
payment sooner. The election to utilise the programme is the sole decision of the supplier. As the Group continues to have a contractual
obligation to pay its suppliers under commercial terms, which are unaffected by any utilisation of the programme, and it does not retain any
ongoing involvement in the SCFs, the related payables are retained on the Group’s balance sheet and classified as trade payables. Further details
are disclosed in note 19.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required
to settle that obligation. Provisions are discounted to present value where the effect is material.
The principal provisions are recognised as follows:
— onerous contracts based on an assessment of whether the direct costs to fulfil a contract are greater than the expected revenue;
— warranty and guarantees based on an assessment of future claims with reference to past experience and recognised at the earlier of when the
underlying products and services are sold and when the likelihood of a future cost is identified;
— Trent 1000 in-service issues when wastage costs are identified as described on page 127; and
— transformation and restructuring when the Group has approved a detailed and formal restructuring plan, and the restructuring has either
commenced or has created a valid expectation to those affected.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
Key judgement – Whether any costs should be treated as wastage
As described further on page 127, in rare circumstances, the Group may incur costs of wasted material, labour or other resources to fulfil a
contract where the level of cost was not reflected in the contract price. The identification of such costs is a matter of judgement and would
only be expected to arise where there has been a series of abnormal events which give rise to a significant level of cost of a nature that the
Group would not expect to incur and hence is not reflected in the contract price. Provision is made for any costs identified as wastage when
the obligation to incur them arises.
Specifically for the Trent 1000 wastage costs, provision has been made as the Group is an owner of an engine Type Certificate under which
it has a present obligation to develop appropriate design changes to address certain engine conditions that have been noted in issued
Airworthiness Directives. The Group is also required to ensure engine operators can continue to safely operate engines within the terms of
their LTSAs, and this requires the engines to be compliant with the requirements of those issued Airworthiness Directives. These
requirements cannot be met without the Group incurring significant costs in the form of replacement parts and customer claims. Given the
significant activities of the Group in designing and overhauling aero engines it is very experienced in making the required estimates in
relation to the number and timing of shop visits, parts costs, overhaul labour costs and customer claims.
Key judgement – Whether the criteria to recognise a transformation and restructuring provision has been met
On 17 October 2023, the Group announced plans for a simpler, more streamlined, organisation as part of its multi-year transformation.
IAS 19 Employee Benefits requires that a liability and expense for termination benefits should be recognised at the earlier of: (a) when an
offer of those benefits can no longer be withdrawn; and (b) when the cost for a restructuring that is within the scope of IAS 37 Provisions,
Contingent Liabilities and Contingent Assets that involves the payment of termination benefits is recognised. The Directors have considered
whether the Group’s communications to employees during 2023 and 2024 have led to an offer of benefits that could no longer be withdrawn.
Significant progress has been made on transformation activities with clear and extensive communication to affected employees, many of
whom have already left the business. The remaining provision relates to roles where the function, location, expected completion date, and
type and amount of benefits is known. It is expected to be utilised by 31 December 2025.
Key estimates – Estimates of the time and cost to incorporate required modified parts into the fleet to resolve technical issues on certain
programmes (which could be exacerbated by prolonged supply chain challenges) and the implications of this on forecast future costs
when assessing onerous contracts.
The Group has provisions for Trent 1000 wastage costs at 31 December 2024 of £36m (2023: £116m). These represent the Directors’ best
estimate of the expenditure required to settle the obligations at the balance sheet date. These estimates take account of information
available and different possible outcomes.
The Group considers that at 31 December 2024 the Trent 1000 onerous contract provisions are most sensitive to changes in estimates. Our
forecast increases in shop visit capacity could be impacted by several factors, including prolonged supply chain challenges. If forecast
increases in shop visit capacity are not achieved, this could have the impact of reducing planned output of engine overhauls. A 20%
reduction in Trent 1000 planned output during the second half of 2025 (and thus delayed incorporation of modified parts into the fleet)
could lead to around a £30m to £50m charge.
Key estimates – Estimates of the future revenues and costs to fulfil onerous contracts
The Group has provisions for onerous contracts at 31 December 2024 of £1,433m (2023: £1,472m). An increase in Civil Aerospace large engine
estimates of LTSA costs of 1% over the remaining term of the contracts could lead to around a £60m to £80m increase in the onerous
contract provisions across all programmes.
Key estimates – Assumptions implicit within the calculation of discount rates
The onerous contract provisions are sensitive to changes in the discount rate used to value the provisions. The rate used for each contract
is derived from bond yields (i.e. risk-free rates) with a similar duration and currency to the contract that they are applied to. The rate is
adjusted to reflect the specific inflation characteristics of the contracts. The forecast rates are determined from third-party market analysis
and average 5%. A 1% change in the discount rates used could lead to around a £40m to £50m change in the provision.
Customer financing support
In connection with the sale of its products, the Group will, on occasion, provide financing support for its customers. Credit-based guarantees
are disclosed as commitments or contingent liabilities dependent on whether aircraft have been delivered or not. As described on page 183, the
Directors consider the likelihood of crystallisation in assessing whether provision is required for any contingent liabilities.
The Group’s contingent liabilities relating to financing arrangements are spread over many years and relate to a number of customers and a
broad product portfolio and are reported on a discounted basis.
135
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
1 Accounting policies continued
Post-retirement benefits
Pensions and similar benefits (principally healthcare) are accounted for under IAS 19 Employee Benefits�
For defined benefit plans obligations are measured at discounted present value using a discount rate derived from high-quality corporate bonds
denominated in the currency of the plan, whilst plan assets are recorded at fair value. Surpluses in schemes are recognised as assets only if they
represent economic benefits available to the Group in the future. Actuarial gains and losses are recognised immediately in OCI. The service and
financing costs of such plans are recognised separately in the income statement:
— current service costs are spread systematically over the lives of employees;
— past-service costs and settlements are recognised immediately; and
— financing costs are recognised in the periods in which they arise.
UK pension obligations include the estimated impact of the obligation to equalise defined benefit pensions and transfer values for men and women.
Payments to defined contribution schemes are charged as an expense as they fall due.
Key estimate – Estimates of the assumptions for valuing the net defined benefit obligation
The Group’s defined benefit pension schemes and similar arrangements are assessed annually in accordance with IAS 19 Employee Benefits�
The valuations, which are based on assumptions determined with independent actuarial advice, resulted in a net deficit of £191m before
deferred taxation being recognised on the balance sheet at 31 December 2024 (2023: deficit of £253m). The size of the net surplus/deficit
is sensitive to the actuarial assumptions which include the discount rate, price inflation, pension and salary increases, longevity and, in the
UK, the number of plan members who take the option to transfer their pension to a lump sum on retirement or who choose to take the
Bridging Pension Option. Following consultation, the UK scheme closed to future accrual on 31 December 2020.
A reduction in the discount rate of 0.25% from 5.50% could lead to an increase in the defined benefit obligations of the RR UK Pension
Fund (RRUKPF) of approximately £145m. 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.
An increase in the assumed rate of inflation of 0.25% (RPI of 3.30% and CPI of 2.90%) could lead to an increase in the defined benefit
obligations of the RRUKPF of approximately £55m.
A one-year increase in life expectancy from 20.8 years (male aged 65) and from 21.5 years (male aged 45) would increase the defined
benefit obligations of the RRUKPF by approximately £125m.
Further details and sensitivities are included in note 22.
Share-based payments
The Group provides share-based payment arrangements to certain employees. These are principally equity-settled arrangements and are
measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. The fair value is expensed on a
straight-line basis over the vesting period. The amount recognised as an expense is adjusted to reflect the actual number of shares or options
that will vest based on expected performance, except where additional shares vest as a result market-based performance conditions, such as the
total shareholder return (TSR) performance condition in the long-term incentive plan (LTIP), where no adjustment is required as allowance for
these performance conditions are included in the initial fair value.
Cash-settled share options (grants in the International ShareSave plan) are measured at fair value at the balance sheet date. The Group recognises
a liability at the balance sheet date based on these fair values, taking into account the estimated number of options that are expected to vest
and the relative completion of the vesting period. Changes in the value of this liability are recognised in the income statement for the year.
The cost of shares of Rolls-Royce Holdings plc held by the Group for the purpose of fulfilling obligations in respect of employee share plans is
deducted from equity in the consolidated balance sheet. See note 24 for a further description of the share-based payment plans.
Revisions to IFRS not applicable in 2024
Standards and interpretations issued by the IASB are only applicable if endorsed by the UK. Other than IFRS 18 Presentation and Disclosure in
Financial Statements described below, the Group does not consider that any other standards, amendments or interpretations issued by the IASB,
but not yet applicable will have a significant impact on the Consolidated Financial Statements.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1 Accounting policies continued
IFRS 18 Presentation and Disclosure in Financial Statements
The IASB issued a new Standard, IFRS 18 Presentation and Disclosure in Financial Statements, on 9 April 2024 that will replace IAS 1 Presentation
of Financial Statements. The purpose of the new standard is to provide more consistent presentation of financial information across preparers
as it is acknowledged that existing standards have given flexibility to present information in different ways. IFRS 18 Presentation and Disclosure
in Financial Statements will not impact the recognition or measurement of items in the financial statements. Many of the existing presentation
principles in IAS 1 Presentation of Financial Statements are retained, but there are some more specific requirements that will require the Group
to make some changes in its future Annual Reports and Interim Financial Statements.
The new Standard is not yet endorsed by the UK Endorsement Board (UKEB) but is expected to be applicable for reporting periods beginning
on or after 1 January 2027. Comparative information for 2026 will need to be restated when subsequent financial statements are published. The
Group has performed an initial review of the Standard and expects changes to the presentation of the income statement and the Group’s reported
operating profit (driven by required changes such as the ‘Share of results of joint ventures and associates’ being required to be presented in a
new investing category which will no longer form part of operating profit in the Statutory Consolidated Income Statement). The process of
assessing the financial impact on the Consolidated Financial Statements will continue during 2025. The Group does not anticipate its early
adoption of the new Standard.
Other
IBOR reform transition
A number of the Group’s lease liabilities have been based on a USD LIBOR index. The majority of contracts in which the Group is a lessee have
been amended. These have been amended to USD Term Secure Overnight Financing Rate (SOFR) plus credit adjustment spread (CAS), and the
impact to the Financial Statements is not material. The Group has taken the practical expedient available to account for the lease modification
required by the IBOR reform by applying IFRS 16 Leases paragraph 42�
Post balance sheet events
The Group has taken the latest legal position in relation to any ongoing legal proceedings and reflected these in the 2024 results as
appropriate.
2 Segmental analysis
The analysis by 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 Operating Segments). 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 reactors (SMRs) and new electrical power solutions
Other businesses include the trading results of the UK Civil Nuclear business.
Underlying results
The Group presents the financial performance of the businesses in accordance with IFRS 8 Operating Segments 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
(other than lease 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.
Lease liabilities are not revalued to reflect the expected exchange rates due to their multi-year remaining term, the Directors believe that doing
so would not be the most appropriate basis to measure the in-year performance. 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.
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 year to 31 December 2024, the Group was a net seller of USD at an achieved exchange rate GBP:USD of 1.48 (2023: 1.50) based on the USD
hedge book.
137
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
2 Segmental analysis continued
In 2020, the Group experienced a significant decline in its medium-term outlook and consequently a significant deterioration to its forecast net
USD cash inflows. The Group took action to reduce the size of the USD hedge book by $11.8bn across 2020-2026 to reflect the fact that, at that
time, future operating cash flows were no longer forecast to materialise. An underlying charge of £1.7bn was recognised within the underlying
finance costs in 2020 and the associated cash settlement costs occur over the period 2020-2026. 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.
Underlying performance also excludes the following:
— the effect of acquisition accounting and business disposals;
— impairment of goodwill, 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.
Subsequent changes in items excluded from underlying performance in a prior period will also be excluded from underlying performance.
All other changes will be recognised within underlying performance.
Acquisition accounting, business disposals and impairment
The Group exclude these from underlying results so that the current period/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 consider 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 exceptional restructuring and transformation programmes and one-time past service charges and credits on post-retirement schemes.
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 and statutory performance.
The tax effects of adjustments above are excluded from the underlying tax charge. Changes in tax rates are excluded from the underlying tax
charge. In addition, changes in the amount of recoverable deferred tax recognised are excluded from the underlying results to the extent that
their recognition or derecognition was not originally recorded within the underlying results.
The following analysis sets out the results of the Group’s divisions on the basis described above and also includes a reconciliation of the
underlying results to those reported in the consolidated income statement.
Corporate
Civil Power New Other and Inter- Total
Aerospace Defence Systems Markets businesses
segment
1
Underlying
£m £m £m £m £m £m £m
Year ended 31 December 2024
Underlying revenue from sale of original equipment
3,105
1,943
2,942
3
12
–
8,005
Underlying revenue from aftermarket services
5,935
2,579
1,329
–
–
–
9,843
Total underlying revenue
9,040
4,522
4,271
3
12
–
17,848
Gross profit/(loss)
1,990
908
1,199
(4)
1
(3)
4,091
Commercial and administrative costs
(396)
(212)
(483)
(40)
(1)
(65)
(1,197)
Research and development costs
(252)
(55)
(165)
(133)
–
–
(605)
Share of results of joint ventures and associates
163
3
9
–
–
–
175
Underlying operating profit/(loss)
1,505
644
560
(177)
–
(68)
2,464
Year ended 31 December 2023
Underlying revenue from sale of original equipment
2,703
1,766
2,661
2
12
–
7,144
Underlying revenue from aftermarket services
4,645
2,311
1,307
2
–
–
8,265
Total underlying revenue
7,348
4,077
3,968
4
12
–
15,409
Gross profit/(loss)
1,394
804
1,050
1
(15)
(3)
3,231
Commercial and administrative costs
(354)
(173)
(456)
(24)
–
(57)
(1,064)
Research and development costs
(343)
(72)
(187)
(137)
–
–
(739)
Share of results of joint ventures and associates
153
3
6
–
–
–
162
Underlying operating profit/(loss)
850
562
413
(160)
(15)
(60)
1,590
1 Corporate and Inter-segment consists of costs that are not attributable to a specific segment and consolidation adjustments
138
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2 Segmental analysis continued
Reconciliation to statutory results
Underlying
adjustments and
adjustments to Group
Total underlying foreign exchange statutory results
£m £m £m
Year ended 31 December 2024
Revenue from sale of original equipment
8,005
384
8,389
Revenue from aftermarket services
9,843
677
10,520
Total revenue
17,848
1,061
18,909
Gross profit
4,091
130
4,221
Commercial and administrative costs
(1,197)
(87)
(1,284)
Research and development costs
(605)
402
(203)
Share of results of joint ventures and associates
175
(3)
172
Operating profit
2,464
442
2,906
Gain arising on the disposal of businesses
–
16
16
Profit before financing and taxation
2,464
458
2,922
Net financing
(171)
(517)
(688)
Profit/(loss) before taxation
2,293
(59)
2,234
Taxation
(282)
532
250
Profit for the year
2,011
473
2,484
Attributable to:
Ordinary shareholders
2,048
473
2,521
NCI
(37)
–
(37)
Year ended 31 December 2023
Revenue from sale of original equipment
7,144
491
7,635
Revenue from aftermarket services
8,265
586
8,851
Total revenue
15,409
1,077
16,486
Gross profit
3,231
389
3,620
Commercial and administrative costs
(1,064)
(46)
(1,110)
Research and development costs
(739)
–
(739)
Share of results of joint ventures and associates
162
11
173
Operating profit
1,590
354
1,944
Gain arising on the disposal of businesses
–
1
1
Profit before financing and taxation
1,590
355
1,945
Net financing
(328)
810
482
Profit before taxation
1,262
1,165
2,427
Taxation
(120)
97
(23)
Profit for the year
1,142
1,262
2,404
Attributable to:
Ordinary shareholders
1,150
1,262
2,412
NCI
(8)
–
(8)
139
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
2 Segmental analysis continued
Disaggregation of revenue from contracts with customers
Analysis by type and basis of recognition
Corporate
Civil Power New Other and Inter- Total
Aerospace Defence Systems Markets businesses segment Underlying
£m £m £m £m £m £m £m
Year ended 31 December 2024
Original equipment recognised at a point in time
3,105
562
2,871
3
–
–
6,541
Original equipment recognised over time
–
1,381
71
–
12
–
1,464
Aftermarket services recognised at a point in time
1,258
918
1,231
–
–
–
3,407
Aftermarket services recognised over time
4,594
1,661
98
–
–
–
6,353
Total underlying customer contract revenue
8,957
4,522
4,271
3
12
–
17,765
Other underlying revenue
1
83
–
–
–
–
–
83
Total underlying revenue
2
9,040
4,522
4,271
3
12
–
17,848
Year ended 31 December 2023
Original equipment recognised at a point in time
2,703
632
2,611
2
–
–
5,948
Original equipment recognised over time
–
1,134
50
–
12
–
1,196
Aftermarket services recognised at a point in time
1,227
854
1,206
2
–
–
3,289
Aftermarket services recognised over time
3,335
1,457
101
–
–
–
4,893
Total underlying customer contract revenue
7,265
4,077
3,968
4
12
–
15,326
Other underlying revenue
1
83
–
–
–
–
–
83
Total underlying revenue
2
7,348
4,077
3,968
4
12
–
15,409
1 Includes leasing revenue
2 Includes £317m, of which £311m relates to Civil LTSA contracts, (2023: £(136)m, of which £(104)m relates to Civil LTSA contracts) of revenue recognised in the year relating to performance
obligations satisfied in previous years
Underlying
adjustments and
adjustments to Group
Total underlying foreign exchange
statutory results
1
£m £m £m
Year ended 31 December 2024
Original equipment recognised at a point in time
6,541
384
6,925
Original equipment recognised over time
1,464
–
1,464
Aftermarket services recognised at a point in time
3,407
163
3,570
Aftermarket services recognised over time
6,353
501
6,854
Total customer contract revenue
17,765
1,048
18,813
Other revenue
83
13
96
Total revenue
17,848
1,061
18,909
Year ended 31 December 2023
Original equipment recognised at a point in time
5,948
491
6,439
Original equipment recognised over time
1,196
–
1,196
Aftermarket services recognised at a point in time
3,289
186
3,475
Aftermarket services recognised over time
4,893
382
5,275
Total customer contract revenue
15,326
1,059
16,385
Other revenue
83
18
101
Total revenue
15,409
1,077
16,486
1 During the year to 31 December 2024, revenue recognised within Civil Aerospace, Defence and Power Systems of £1,915m (2023: £1,766m) was received from a single customer
140
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2 Segmental analysis continued
Analysis by geographical destination
The Group’s revenue by destination of the ultimate operator is as follows:
2024 2023
£m £m
United Kingdom
2,642
2,230
Germany
1,048
1,035
Switzerland
440
379
France
332
351
Ireland
324
504
Italy
318
282
Turkey
307
399
Spain
282
290
Poland
141
50
Netherlands
130
149
Portugal
121
110
Norway
96
71
Belgium
78
27
Israel
73
51
Rest of Europe
239
180
Europe
6,571
6,108
United States
5,477
4,668
Canada
462
430
North America
5,939
5,098
South America
336
230
Central America
169
106
Saudi Arabia
428
394
United Arab Emirates
255
148
Qatar
196
128
Rest of Middle East
301
200
Middle East
1,180
870
China
1,400
1,263
Japan
634
586
Singapore
506
437
South Korea
359
303
Taiwan
211
113
India
147
221
Thailand
138
132
Philippines
130
121
Indonesia
125
129
Rest of Asia
243
166
Asia
3,893
3,471
Africa
406
313
Australasia
415
290
18,909
16,486
141
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
2 Segmental analysis continued
Order backlog
Contracted consideration, translated at the estimated long-term exchange rates, that is expected to be recognised as revenue when performance
obligations are satisfied in the future (referred to as order backlog) is as follows:
2024
2023
Within After Within After
five years five years Total five years five years Total
£bn £bn £bn £bn £bn £bn
Civil Aerospace
29.7
30.2
59.9
28�4
26�8
55�2
Defence
14.0
3.4
17.4
8�3
0�9
9�2
Power Systems
4.7
0.1
4.8
3�9
0�2
4�1
New Markets
–
–
–
–
–
–
Other businesses
–
–
–
–
–
–
48.4
33.7
82.1
40�6
27.9
68�5
The parties to these contracts have approved the contract and customers do not have a unilateral enforceable right to terminate the contract
without compensation. The Group excludes Civil Aerospace OE orders (for deliveries beyond the next seven to 12 months) that customers have
placed where they retain a right to cancel. The Group’s expectation based on historical experience is that these orders will be fulfilled. The main
reason for the increase in the order backlog within Defence is the signature of a multi-year Submarines contract with the MoD. This contract
(Unity) encompasses: research and technology, design, manufacture and in-service support of the nuclear reactors that power the Royal Navy’s
fleet of submarines. Within the five years category, contracted revenue in Defence will largely be recognised in the next three years and Power
Systems will be recognised over the next two years as it is a short cycle business.
Underlying adjustments
2024
2023
Profit before Net Profit before Net
Revenue financing financing Taxation Revenue financing financing Taxation
£m £m £m £m £m £m £m £m
Underlying performance
17,848
2,464
(171)
(282)
15,409
1,590
(328)
(120)
Impact of foreign exchange differences as a
result of hedging activities on trading
transactions
1
A
1,061
197
190
(97)
1,077
469
394
(210)
Unrealised fair value changes on derivative
contracts held for trading
2
A
–
(6)
(649)
164
–
6
514
(130)
Unrealised fair value changes on derivative
contracts held for financing
3
A
–
–
40
(10)
–
–
7
(2)
Exceptional programme credits/(charges)
4
B
–
–
–
–
–
21
–
(5)
Exceptional transformation and restructuring
(charges)/credits
5
B
–
(234)
(11)
65
–
(102)
–
25
Impairment reversals
6
C
–
547
–
(157)
–
8
–
(2)
Effect of acquisition accounting
7
C
–
(45)
–
11
–
(50)
–
12
Other
8
D
–
(17)
(87)
27
–
2
(105)
24
Gains arising on the disposals of businesses
C
–
16
–
(6)
–
1
–
–
Impact of tax rate change
9
D
–
–
–
10
–
–
–
–
Recognition of deferred tax assets
10
D
–
–
–
525
–
–
–
385
Total underlying adjustments
1,061
458
(517)
532
1,077
355
810
97
Statutory performance per consolidated
income statement
18,909
2,922
(688)
250
16,486
1,945
482
(23)
A – FX, B – Exceptional, C – M&A and impairment, D – Other
1 The impact of measuring revenues and costs at the average exchange rate during the year and the impact of valuation of assets and liabilities using the year 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 statutory revenues by £1,061m (2023: £1,077m) and increased profit before
financing and taxation by £197m (2023: £469m). Underlying financing excludes the impact of revaluing monetary assets and liabilities at the year 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 Includes net fair value gain of £40m (2023: £1m) on any interest rate swaps not designated into hedging relationships for accounting purposes
4 During the year to 31 December 2024, £nil (2023: £21m) of Trent 1000 wastage costs provision previously recognised in respect of estimated costs to settle obligations have been reversed
to reflect the current status of claims in respect of the Trent 1000 technical issues which were identified in 2019
5 In 2023, the Group announced a major multi-year transformation programme consisting of seven workstreams (set out in the 2022 Annual Report). During the year to 31 December 2024,
the Group incurred charges of £234m related to this programme (2023: £88m). The charges comprise of £68m related to severance costs, £37m for advisory fees and transformation office
costs and £129m related to impairments, write-offs and closure costs (including those related to the closure of advanced air mobility activities). In the year to 31 December 2024, the Group
incurred £nil charge (2023: £14m) related to initiatives to enable restructuring under a previous programme
6 The Group has assessed the carrying value of its assets and reviewed for potential impairment and impairment reversal triggers. As a result, there has been an impairment reversal of an
intangible asset of £413m, a contract asset of £132m in relation to Civil Aerospace programme assets and £2m of other impairment reversals during the year. Details on other impairments
and impairment reversals are provided in notes 9 and 15
7 The effect of acquisition accounting includes the amortisation of intangible assets arising on previous acquisitions
8 Includes interest received of £78m (2023: £83m) on interest rate swaps which are not designated into hedge relationships for statutory purposes from interest payable on an underlying
basis to fair value movement and £14m (2023: £2m) of past-service credit on defined benefit schemes
9 Represents the impact to the income statement of the reduction in the tax rate on authorised surplus pension charges from 35% to 25%
10 The 2024 balance of £525m represents the recognition of a deferred tax asset relating to non-underlying UK tax losses. The 2023 balance represents the recognition of deferred tax asset
relating to non-underlying UK tax losses of £328m and foreign exchange derivatives of £57m. Further details are provided in note 5
142
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
2 Segmental analysis continued
Balance sheet analysis
Total
Civil Power New reportable
Aerospace Defence Systems Markets segments
At 31 December 2024 £m £m £m £m £m
Segment assets
19,303
3,495
3,998
111
26,907
Interests in joint ventures and associates
550
9
33
–
592
Segment liabilities
(26,621)
(3,322)
(1,969)
(135)
(32,047)
Net (liabilities)/assets
(6,768)
182
2,062
(24)
(4,548)
Investment in intangible assets, property, plant and equipment, right-of-use
assets and joint ventures and associates
650
164
198
13
1,025
Depreciation, amortisation and impairment
210
85
199
55
549
At 31 December 2023
Segment assets
17,718
3,517
3,814
115
25,164
Interests in joint ventures and associates
444
7
28
–
479
Segment liabilities
(24,447)
(3,376)
(1,765)
(88)
(29,676)
Net (liabilities)/assets
(6,285)
148
2,077
27
(4,033)
Investment in intangible assets, property, plant and equipment, right-of-use
assets and joint ventures and associates
562
176
160
17
915
Depreciation, amortisation and impairment
719
105
194
9
1,027
Reconciliation to the balance sheet
2024 2023
£m £m
Total reportable segment assets (excluding held for sale)
26,907
25,164
Other businesses
11
8
Corporate and Inter-segment
(2,227)
(2,010)
Interests in joint ventures and associates
592
479
Assets held for sale
153
109
Cash and cash equivalents and short-term investments
5,575
3,784
Fair value of swaps hedging fixed rate borrowings
154
118
Deferred and income tax assets
3,731
3,078
Post-retirement scheme surpluses
790
782
Total assets
35,686
31,512
Total reportable segment liabilities (excluding held for sale)
(32,047)
(29,676)
Other businesses
(65)
(58)
Corporate and Inter-segment
2,227
2,010
Liabilities associated with assets held for sale
(100)
(55)
Borrowings and lease liabilities
(5,132)
(5,759)
Fair value of swaps hedging fixed rate borrowings
(121)
(95)
Deferred and income tax liabilities
(348)
(473)
Post-retirement scheme deficits
(981)
(1,035)
Total liabilities
(36,567)
(35,141)
Net liabilities
(881)
(3,629)
The carrying amounts of the Group’s non-current assets including investments but excluding financial instruments, deferred tax assets and
post-retirement scheme surpluses/(deficits), by the geographical area in which the assets are located, are as follows:
2024 2023
£m £m
United Kingdom
4,968
4,981
Germany
2,326
2,052
United States
1,481
1,414
Other
709
705
9,484
9,152
143
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
3 Research and development
2024 2023
£m £m
Gross research and development expenditure
(1,475)
(1,390)
Contributions and fees
1
700
548
Net expenditure in the year
(775)
(842)
Capitalised as intangible assets
263
192
Amortisation and impairment of capitalised costs
2, 3
309
(89)
Net amount recognised in the income statement
(203)
(739)
Underlying adjustments
3
(402)
–
Net underlying cost recognised in the income statement
(605)
(739)
1 Includes £667m (2023: £531m) of government funding
2 See note 9 for analysis of amortisation and impairment
3 Underlying adjustments include impact of acquisition accounting, foreign exchange and an impairment reversal of £413m (2023: £nil). See note 2 and note 9 for more information
4 Net financing
2024
2023
Statutory
Underlying
1
Statutory
Underlying
1
£m £m £m £m
Interest receivable and similar income
2
269
266
164
164
Net fair value gains on foreign currency contracts
–
–
574
–
Net fair value gains on non-hedge accounted interest rate swaps
3
40
–
1
–
Financing on post-retirement scheme surpluses
37
–
30
–
Net foreign exchange gains
190
–
394
–
Financing income
536
266
1,163
164
Interest payable
(362)
(273)
(369)
(275)
Net fair value losses on foreign currency contracts
(631)
–
–
–
Net fair value losses on revaluation of other investments accounted for at FVTPL
4
(24)
(24)
–
–
Foreign exchange differences and changes in forecast payments relating
to financial RRSAs
–
–
(1)
–
Net fair value losses on commodity contracts
(18)
–
(60)
–
Financing on post-retirement scheme deficits
(39)
–
(42)
–
Cost of undrawn facilities
(17)
(17)
(57)
(57)
Other financing charges
(133)
(123)
(152)
(160)
Financing costs
(1,224)
(437)
(681)
(492)
Net financing (costs)/income
(688)
(171)
482
(328)
Analysed as:
Net interest payable
(93)
(7)
(205)
(111)
Net fair value (losses)/gains on derivative contracts
(609)
–
515
–
Net post-retirement scheme financing
(2)
–
(12)
–
Net foreign exchange gains
190
–
394
–
Net other financing
(174)
(164)
(210)
(217)
Net financing (costs)/income
(688)
(171)
482
(328)
1 See note 2 for definition of underlying results
2 Includes interest income on cash balances and short-term deposits of £188m (2023: £117m) and similar income of £81m (2023: £47m) on money market funds
3 The consolidated income statement shows the net fair value gain on any interest rate swaps not designated into hedging relationships for accounting purposes. Underlying
financing reclassifies the realised fair value movements on these interest rate swaps to net interest payable
4 Included in the financing costs is a £24m (2023: £nil) charge in relation to the fair value write-down of an unlisted investment recorded at fair value through profit or loss (FVTPL)
144
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5 Taxation
UK
Overseas
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Current tax charge for the year
30
19
379
256
409
275
Current tax charge in respect of Pillar Two income
taxes
2
–
–
–
2
–
Adjustments in respect of prior years
–
–
(18)
2
(18)
2
Current tax
32
19
361
258
393
277
Deferred tax charge/(credit) for the year
265
224
3
(69)
268
155
Adjustments in respect of prior years
17
(5)
(47)
2
(30)
(3)
Recognition of deferred tax
(1,033)
(406)
–
–
(1,033)
(406)
Derecognition of advance corporation tax
162
–
–
–
162
–
Deferred tax credit resulting from
an decrease in the UK tax rate
(10)
–
–
–
(10)
–
Deferred tax
(599)
(187)
(44)
(67)
(643)
(254)
(Credited)/charged in the income statement
(567)
(168)
317
191
(250)
23
Other tax (charges)/credits
OCI
Equity
Items that will not be reclassified
Items that will be reclassified
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Deferred tax:
Movement in post-retirement schemes
61
(43)
–
–
–
–
Cash flow hedge
–
–
(1)
5
–
–
Net investment hedge
–
–
(2)
(1)
–
–
Share-based payments – direct to equity
–
–
–
–
71
22
Other tax credits/(charges)
61
(43)
(3)
4
71
22
Tax reconciliation
2024 2023
£m £m
Profit before taxation
2,234
2,427
Less share of profits of joint ventures and associates (note 12)
(137)
(139)
Profit before taxation excluding joint ventures and associates
2,097
2,288
Nominal tax charge at UK corporation tax rate 25.0% (2023: 23.5%)
524
538
UK tax rate differential
1
–
16
Overseas rate differences
2
27
(5)
US state taxes
23
14
Tax de-grouping charge
3
102
–
Other permanent differences
4
12
–
Benefit to deferred tax from previously unrecognised tax losses and temporary differences
5
–
(57)
Tax losses and other temporary differences not recognised in deferred tax
6
3
9
Derecognition of deferred tax
30
–
Benefit arising from previously unrecognised tax losses
7
(42)
(85)
Recognition of deferred tax
8
(1,033)
(406)
Adjustments in respect of prior years
(48)
(1)
Derecognition of advance corporation tax
9
162
–
Decrease in deferred taxes resulting from a change in the UK tax rate
10
(10)
–
(250)
23
Underlying items (note 2)
282
120
Non-underlying items
(532)
(97)
(250)
23
1 The UK tax rate differential in 2023 arises on the difference between the deferred tax rate and the statutory tax rate
2 Overseas rate differences mainly relate to tax on profits or losses in countries such as Germany
3 The tax de-grouping charge arises on the dilution of the shareholding in Rolls-Royce SMR Limited to below 75%
4 Includes £2m relating to Pillar two income taxes
5 Benefit to deferred tax from previously unrecognised tax losses and temporary differences in 2023 relates to foreign exchange derivatives
6 Relates to tax losses not recognised
7 Relates to foreign exchange derivatives
8 The recognition of deferred tax relates to UK tax losses
9 Advance corporation tax has been derecognised on the basis that payment of cash dividends will prevent the utilisation
10 Represents the impact to the income statement of the reduction in the tax rate on authorised surplus pension charges from 35% to 25%
145
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
5 Taxation continued
Deferred taxation assets and liabilities
2024 2023
£m £m
At 1 January
2,668
2,445
Amount credited to income statement
643
254
Amount credited/(charged) to OCI
59
(44)
Amount (charged)/credited to hedging reserves
(1)
5
Amount credited to equity
71
22
On acquisition of businesses
1
–
(1)
Exchange differences
(11)
(13)
At 31 December
3,429
2,668
Deferred tax assets
3,660
2,998
Deferred tax liabilities
(231)
(330)
3,429
2,668
1 The 2023 deferred tax relates to the acquisition of Team Italia Marine S.R.L.
The analysis of the deferred tax position is as follows:
Disposals and
Recognised acquisition
in income Recognised Recognised related Exchange At 31
At 1 January statement in OCI in equity activity differences December
£m £m £m £m £m £m £m
2024
Intangible assets
(431)
(191)
–
–
–
9
(613)
Property, plant and equipment
229
(87)
–
–
–
–
142
Other temporary differences
1
752
77
(3)
62
–
(14)
874
Net contract liabilities
60
3
–
–
–
–
63
Pensions and other post-retirement
scheme benefits
(123)
10
61
–
–
(2)
(54)
Foreign exchange and commodity
financial assets and liabilities
451
40
–
–
–
(3)
488
Losses
1,489
984
–
9
–
(1)
2,481
R&D credit
79
(31)
–
–
–
–
48
Advance corporation tax
2
162
(162)
–
–
–
–
–
2,668
643
58
71
–
(11)
3,429
2023
Intangible assets
(436)
6
–
–
(1)
–
(431)
Property, plant and equipment
230
(7)
–
–
–
6
229
Other temporary differences
1
650
88
4
22
–
(12)
752
Net contract liabilities
64
(4)
–
–
–
–
60
Pensions and other post-retirement
scheme benefits
(57)
(15)
(43)
–
–
(8)
(123)
Foreign exchange and commodity
financial assets and liabilities
693
(243)
–
–
–
1
451
Losses
1,072
417
–
–
–
–
1,489
R&D credit
67
12
–
–
–
–
79
Advance corporation tax
2
162
–
–
–
–
–
162
2,445
254
(39)
22
(1)
(13)
2,668
1 Other temporary differences mainly relate to the deferral of relief for interest expenses and share based payments in the UK and revenue recognised earlier under local GAAP compared
to IFRS in Germany
2 Prior to 1999, advance corporation tax was paid to the UK Tax Authority when cash dividends were paid by the Group. This was a payment on account which was available to offset against
UK corporation tax liabilities. Any unused balance remaining after 1999 can be carried forward indefinitely and utilised against future UK corporation tax liabilities. The balance has been
de-recognised in 2024 following the Group’s announcement to reinstate shareholder distributions via cash dividends, which will prevent utilisation of the surplus advance corporation tax
balance
146
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
5 Taxation continued
Unrecognised deferred tax assets
2024 2023
£m £m
Advance corporation tax
181
19
UK losses
629
1,635
Foreign exchange and commodity financial assets and liabilities
27
69
Losses and other unrecognised deferred tax assets
47
34
Deferred tax not recognised on unused tax losses and other items on the basis that future economic benefit
is uncertain
884
1,757
Gross amount and expiry of losses and other deductible temporary differences for which no deferred tax asset has been recognised.
2024
2023
Foreign Foreign
exchange exchange
Total gross and Total gross and
losses and commodity losses and commodity
deductible financial deductible financial
temporary UK assets and Other temporary UK assets and Other
differences losses liabilities losses differences losses liabilities losses
£m £m £m £m £m £m £m £m
Expiry within five years
75
–
–
75
81
–
–
81
Expiry within
six to 30 years
218
–
–
218
216
–
–
216
No expiry
2,698
2,515
107
76
6,891
6,537
275
79
2,991
2,515
107
369
7,188
6,537
275
376
In addition to the gross balances shown above, advance corporation tax of £181m (2023: £19m) has not been recognised. Advance corporation
tax has no expiry.
Of the total deferred tax asset of £3,660m, £3,099m (2023: £2,399m) relates to the UK and is made up as follows:
— £2,472m (2023: £1,476m) relating to tax losses;
— £425m (2023: £412m) arising on unrealised losses on derivative contracts;
— £nil (2023: £162m) of advance corporation tax; and
— £202m (2023: £349m) relating to other deductible temporary differences, in particular tax depreciation and relief for interest expenses.
The UK deferred tax assets primarily arise in Rolls-Royce plc and 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 deductible temporary differences can be utilised.
Most of the UK tax losses relate to the Civil Aerospace large engine 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.
Deferred tax assets are recognised only to the extent 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 large engine business, to assess the level of future taxable profits.
The recoverability of deferred tax assets has been assessed on the following basis:
— using the most recent UK profit forecasts, covering the next five years which are consistent with external sources on market conditions;
— the long-term forecast profit profile of existing large engine programmes which are typically in excess of 30 years from initial investment to
retirement of the fleet, including the aftermarket revenues earned from airline customers;
— the long-term forecast is adjusted to exclude engine programmes which are in the development stage with no confirmed orders;
— taking into account the risk that regulatory changes could materially impact demand for our products;
— consideration that although all Civil Aerospace large engines are now compatible with sustainable fuels, there is a risk that in the longer term
demand will shift towards more sustainable products and solutions;
— the long-term forecast profit and cost profile of the other parts of the UK business;
—
taking into consideration past performance and experience as well as a 25% probability of a severe but plausible downside forecast
materialising in relation to the civil aviation industry; and
— consideration that the UK business returned to profitability in 2023.
147
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
5 Taxation continued
The assessment takes into account UK tax laws that, in broad terms, restrict the offset of carried forward tax losses to 50% of current year
profits. In addition, the amounts and timing of future taxable profits incorporate:
— the impact of significant Civil Aerospace large engine orders in 2024;
— the outcomes of strategic initiatives, including contractual margin improvements and cost reduction;
— the continued growth in Civil Aerospace engine flying hours; and
— management’s assumptions on the impact of macro-economic factors and climate change on the UK business.
The climate change scenarios previously prepared to assess the viability of our business strategy, decarbonisation plans and approach to
managing climate-related risks have continued to develop over the last year. The scale up of sustainable aviation fuel is expected to play a
crucial role in reaching net zero carbon emissions by 2050 and the Group has demonstrated that all the commercial aero engines it produces
are compatible with sustainable fuels. The impact that climate change could have on our costs and customer pricing is factored into the deferred
tax assessment. However, benefits that may arise in the future from the development of breakthrough new technologies are not taken into account.
Based on the assessment, the Group has recognised a total UK deferred tax asset of £3,099m, which includes the recognition of a further £1,033m
(of which £525m is non-underlying and £508m is underlying) deferred tax asset relating to UK tax losses. This reflects the conclusions that:
— Based on current financial results and an improved outlook it is probable that the UK business will generate taxable income and tax liabilities
in the future against which these losses can be utilised.
—
Using current forecasts and various scenarios these losses and other deductible temporary differences will be used in full within 30 to 40
years, which is within the expected programme lifecycles. An explanation of the potential impact of climate change on forecast profits and
sensitivity analysis can be found in note 1.
The 2024 announcement of a reinstatement of regular shareholder distributions via cash dividends will prevent utilisation of the Group’s £162m
advance corporation tax balance. As a result, the associated deferred tax asset has been fully de-recognised.
Any future changes in tax law or the structure of the Group could have a significant effect on the use of losses and other deductible temporary
differences, 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 Statutory instrument reducing the tax rate on authorised surplus pension charges from 35% to 25% effective from 6 April 2024 was enacted
on 11 March 2024. The deferred tax liability on the UK pension surplus has therefore been re-measured at 25%. The resulting credit has been
recognised in OCI except to the extent that the items were previously charged or credited to the income statement. Accordingly, in 2024, £67m
has been credited to OCI and £10m has been credited to the income statement.
The Group is within the scope of the OECD Pillar Two (Global Minimum Tax) model rules, which came into effect from 1 January 2024. For the
period to 31 December 2024, the Group has continued to apply the mandatory exception from recognising and disclosing information about
deferred tax assets and liabilities related to Pillar Two income taxes.
The temporary differences associated with investments in subsidiaries, joint ventures and associates, for which a deferred tax liability has not
been recognised, aggregate to £1,558m (2023: £1,230m). 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.
Impact of recognition of UK deferred tax assets on underlying profit after tax
As outlined above, during the year the Group recognised a further £1,033m (of which £525m is non-underlying and £508m is underlying) deferred
tax asset relating to UK tax losses and fully derecognised a £162m advance corporation tax balance (as an underlying charge). The net £346m
credit to underlying profit after tax has been adjusted in the calculation of the proposed dividend per share, earnings per share and return on
capital, this one-off non-cash adjustment has been made as it would otherwise cause a disproportionate impact on these metrics.
148
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
6 Earnings per ordinary share
Basic earnings per ordinary 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.
2024
2023
Potentially Potentially
dilutive share dilutive share
Basic
options
Diluted
Basic
options
Diluted
Profit attributable to ordinary shareholders (£m):
2,521
2,521
2,412
2,412
Weighted average number of ordinary shares (millions)
8,388
51
8,439
8,361
44
8,405
EPS (pence):
30.05
(0.18)
29.87
28�85
(0.15)
28.70
The reconciliation between underlying EPS and basic EPS is as follows:
2024
2023
Pence
£m
Pence
£m
EPS/Profit attributable to ordinary shareholders
30.05
2,521
28�85
2,412
Total underlying adjustments to profit before taxation (note 2)
0.70
59
(13.94)
(1,165)
Related tax effects
(6.34)
(532)
(1.16)
(97)
Adjustment for net recognition of deferred tax assets
1
(4.12)
(346)
–
–
Underlying EPS/Underlying profit attributable to ordinary shareholders
20.29
1,702
13.75
1,150
Diluted underlying EPS attributable to ordinary shareholders
20.17
13�68
1 Underlying profit attributable to ordinary shareholders has been adjusted for the one-off non-cash impact of £346m related to the net recognition of deferred tax assets on UK tax losses,
see note 5, page 148 for further details
7 Auditors’ remuneration
2024 2025
£m £m
Fees payable to the Company’s auditor for the audit of the Company’s annual Financial Statements
3.9
3�6
Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries
pursuant to legislation
8.6
8�6
Total fees payable for audit services
12.5
12�2
Fees payable to the Company’s auditor and its associates for other services:
Audit related assurance services
1
0.7
0.7
Other assurance services
2
0.1
0�2
Total fees payable to the Company’s auditor and its associates
3
13.3
13�1
Fees payable in respect of the Group’s pension schemes:
Audit
0.1
0�1
1 This includes £0.7m (2023: £0.7m) for the review of the half-year report
2 This includes £0.1m (2023: £0.1m) in respect of agreed upon procedures in respect of levies payable and £nil for sustainability assurance work (2023: £0.1m)
3 Audit fees for overseas entities are reported at the average exchange rate for the year
149
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
8 Employee information
2024 2023
Number
1
Number
1
United Kingdom
21,900
20,900
Germany
10,000
10,000
United States
5,300
5,300
Italy
900
900
Singapore
700
700
Canada
700
700
India
600
600
China
500
600
Israel
300
200
France
200
200
Rest of world
1,300
1,300
Monthly average number of employees
42,400
41,400
Civil Aerospace
18,700
18,300
Defence
12,500
12,000
Power Systems
9,900
9,800
New Markets
1,200
1,200
Corporate
2
100
100
Monthly average number of employees
42,400
41,400
2024 2023
Total Total
£m £m
Wages, salaries and benefits
3,056
2,940
Social security costs
369
416
Share-based payments (note 24)
136
66
Pensions and other post-retirement scheme benefits (note 22)
387
346
Group employment costs
3
3,948
3,768
1 Employee numbers have been rounded to the nearest thousand
2 Corporate consists of employees who do not provide a shared service to the segments. Where corporate functions provide such a service, employees have been allocated to the segments
on an appropriate basis
3 Remuneration of key management personnel is shown in note 26
150
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9 Intangible assets
Certification Development Customer
Goodwill costs expenditure relationships
Software
1
Other
2
Total
£m £m £m £m £m £m £m
Cost:
At 1 January 2023
1,135
935
3,604
512
978
886
8,050
Additions
–
–
192
–
79
13
284
Acquisition of businesses
8
–
–
2
–
–
10
Transferred to assets held for sale
3
(10)
–
–
–
–
(185)
(195)
Transferred to current assets
4
–
–
–
–
(23)
–
(23)
Disposals
–
(4)
–
–
(27)
(2)
(33)
Reclassifications
5
–
–
(1)
–
3
(1)
1
Exchange differences
(32)
(1)
(32)
(16)
(6)
(12)
(99)
At 31 December 2023
1,101
930
3,763
498
1,004
699
7,995
Additions
–
–
263
–
96
8
367
Transferred to assets held for sale
3
(25)
–
(4)
(4)
(1)
–
(34)
Disposals
6
–
–
(3)
(13)
(77)
(2)
(95)
Exchange differences
(31)
(1)
(63)
(12)
(4)
(17)
(128)
At 31 December 2024
1,045
929
3,956
469
1,018
688
8,105
Accumulated amortisation and impairment:
At 1 January 2023
36
447
1,912
406
675
476
3,952
Charge for the year
7
–
24
89
41
84
41
279
Impairment
–
–
–
–
–
(7)
(7)
Transferred to assets held for sale
3
–
–
–
–
–
(144)
(144)
Transferred to current assets
4
–
–
–
–
(14)
–
(14)
Disposals
–
(4)
–
–
(23)
(2)
(29)
Reclassifications
5
–
–
–
–
1
(1)
–
Exchange differences
(1)
–
(25)
(14)
(5)
(6)
(51)
At 31 December 2023
35
467
1,976
433
718
357
3,986
Charge for the year
7
–
27
96
35
78
19
255
Impairment
8
13
–
(405)
–
–
17
(375)
Transferred to assets held for sale
3
(12)
–
(4)
(4)
(1)
–
(21)
Disposals
6
–
–
–
(13)
(69)
(2)
(84)
Exchange differences
–
(1)
(37)
(10)
(3)
(7)
(58)
At 31 December 2024
36
493
1,626
441
723
384
3,703
Net book value at:
At 31 December 2024
1,009
436
2,330
28
295
304
4,402
At 31 December 2023
1,066
463
1,787
65
286
342
4,009
1 Includes £100m (2023: £97m) of software under course of construction which is not amortised
2 Other intangibles includes trademarks, brands and the costs incurred testing and analysing engines with the longest time in service (fleet leader engines) to gather technical knowledge
on engine endurance which will improve reliability and enable the Group to reduce the costs of meeting LTSA obligations
3 At 31 December 2024 the Group held for sale the assets and liabilities of the naval propulsors & handling business. See note 27 for further detail
4 During 2023, the Group signed a service concession arrangement with a customer effective from 1 January 2024. Accordingly, assets that were to be derecognised were transferred to
trade receivables and other assets to reflect the nature of these assets as current assets
5 Includes reclassifications within intangible assets or from property, plant and equipment when available for use
6 During the year, the Group disposed of its lower power range engines business based in Power Systems. See note 27 for further detail
7 Charged to cost of sales and commercial and administrative costs except development costs, which are charged to research and development costs
8 Includes £13m of goodwill impairment and £17m of other impairment (related to intellectual property) resulting from the closure of the Group’s advanced air mobility activities. Also includes
reversal of a Civil Aerospace programme asset impairment recognised in 2020. The impairment reversal of £413m (2023: £nil) has been credited to research and development within the
non-underlying income statement. See further details below
At 31 December 2024, the Group had expenditure commitments for software of £28m (2023: £30m).
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.
151
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
9 Intangible assets continued
Goodwill
In accordance with the requirements of IAS 36 Impairment of Assets, goodwill is allocated to the Group’s CGUs, or groups of CGUs, that are
expected to benefit from the synergies of the business combination that gave rise to the goodwill as follows:
Cash-generating unit (CGU) or group of CGUs
Primary
operating 2024 2023
segment £m £m
Rolls-Royce Power Systems AG
Power Systems
779
798
Rolls-Royce Deutschland Ltd & Co KG
Civil Aerospace
226
237
Other
Various
4
31
1,009
1,066
Goodwill has been tested for impairment during 2024 on the following basis:
— The carrying values of goodwill have been assessed by reference to the 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 reflects the products, industries and countries in which the
relevant CGU or group of CGUs operate. Inflation has been included based on contractual commitments where relevant. Where general
inflation assumptions have been required, these have been estimated based on externally sourced data. General inflation assumptions of 2%
to 3% have been included in the forecasts, depending on the nature and geography of the flows.
—
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 as we develop and deliver the products that will support our customers through the energy transition across multiple markets. 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. Based on the climate scenarios prepared, the forecasts do not assume a significant deterioration of demand
for Civil Aerospace (including Rolls-Royce Deutschland) programmes given that all commercial aero engines are compatible with sustainable
fuels. Similarly, 80% of the portfolio in Power Systems is now compatible with alternative and more sustainable fuels. The investment required
to ensure our new products will be compatible with net zero operation, and to achieve net zero Scope 1 + 2 emission commitments is reflected
in the forecasts used.
A 1.5°C scenario has been prepared using key data points from external sources, including Oxford Economics Global Climate Service and
Databank and the International Energy Agency. This scenario has been used as the basis of a sensitivity. It is assumed that governments adopt
stricter product and behavioural standards and measures that result in higher carbon pricing. Under these conditions, it is assumed that markets
are willing to pay for low carbon solutions and that there is an economic return from strategic investments in low carbon alternatives. 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 the impact of 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�
The principal 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 macro-economic factors included with a 25% weighting;
— Cash flows beyond the five-year forecasts are assumed to grow at 2.0% (2023: 2.0%); and
— Nominal pre-tax discount rate 10.2% (2023: 12.0%).
The Directors do not consider that any reasonably possible changes in the key assumptions (including taking consideration of the climate-related
risks above) would cause the value in use of the goodwill fall below its carrying value.
152
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
9 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 aerospace
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 macro-economic factors included with a 25% weighting;
— Cash flows beyond the five-year forecasts are assumed to grow at 2.0% (2023: 2.0%); and
— Nominal pre-tax discount rate 12.6% (2023: 14.4%).
The Directors do not consider that any reasonably possible changes in the key assumptions (including taking consideration of the climate-related
risks above) would cause the value in use of the goodwill to fall below its carrying value.
Other CGUs
Goodwill balances across the Group that are not considered to be individually significant were also tested for impairment. Following the
Directors decision to close the Group’s advanced air mobility activities £13m (2023: £nil) of goodwill, that arose on the acquisition of Siemens’
eAircraft, was impaired during the year.
Material intangible assets (excluding goodwill)
The carrying amount and the residual life of the material intangible assets (excluding goodwill) for the Group is as follows:
Residual life
1
Net book value
2024 2023
£m £m
Trent programme intangible assets
2
1-15 years
2,001
1,920
Business aviation programme intangible assets
3
10-15 years
674
238
Intangible assets related to Power Systems
4
309
370
2,984
2,528
1 Residual life reflects the remaining amortisation period of those assets where amortisation has commenced. As per page 132, the amortisation period of 15 years will commence on those
assets which are not being amortised as the units are delivered
2 Included within the Trent programmes are the Trent 1000, Trent 7000 and Trent XWB
3 Included within business aviation are the Pearl 700, Pearl 15 and Pearl 10X
4 Includes £107m (2023: £112m) in respect of a brand intangible asset which is not amortised. Remaining assets are amortised over a range of three to 15 years
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, significant programme changes
and by analysing latest management forecasts against those prepared in 2023 to identify any change in performance. Where a trigger event has
been identified, an impairment test has been carried out. Where an impairment test was required, it 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; and
—
The key assumptions underpinning cash flow projections are based on estimates of product performance related estimates, future market
share and pricing and cost for uncontracted business. Climate-related risks are considered when making these estimates consistent with the
assumptions above.
Impairment reversal triggers were identified for a Civil Aerospace programme asset previously impaired as a result of the impacts of the pandemic
in 2020. The triggers for recalculating the recoverable amount were improvements during the period in exchange rates, the discount rate and
forecast costs following successful entry-into-service of the engine. An impairment reversal assessment has been carried out on the following
basis:
— The recoverable amount of programme assets has been estimated using a value in use calculation. This has 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; and
—
The key assumptions underpinning cash flow projections are based on estimates of product performance related estimates, future market
share, pricing and cost for uncontracted business. Climate-related risks are considered when making these estimates.
153
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
9 Intangible assets continued
An intangible asset impairment reversal of £413m was recognised in research and development costs together with a participation fee contract
asset impairment reversal of £132m (see note 15) being recognised in cost of sales in the period as follows:
Impairment reversal
Intangible Contract Pre-tax nominal
Assets Assets Total discount rate at
£m £m £m
30 June 2024
1
Civil Aerospace – Business Aviation programme assets
2
413
132
545
13.9%
1 The impairment reversal test was performed at 30 June 2024. The equivalent pre-tax nominal discount rate in 2020, when the impairment was recognised, was 11.9%. As at 31 December
2023, the discount rate was 14.4%
2 The actual amount reversed in local currency represents the full impairment recognised in 2020. Any subsequent change in GBP values on consolidation is solely due to exchange rate
movements
The recoverable amount calculated now significantly exceeds the carrying value of the assets as a result of the inclusion of passage of time
benefits in addition to those from the impairment reversal trigger drivers described above. In making this assessment, the Directors have
considered a range of sensitivities in relation to the market, pricing, cost increases, exchange rates and discount rates.
There have been no other individually material impairment charges or reversals recognised during the period (2023: none).
154
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
10 Property, plant and equipment
Land and Plant and Aircraft and In course of
buildings equipment engines construction Total
£m £m £m £m £m
Cost:
At 1 January 2023
1,936
5,225
999
400
8,560
Additions
19
147
34
223
423
Transferred to current assets
1
(90)
(93)
–
(43)
(226)
Disposals/write-offs
(19)
(309)
(33)
(9)
(370)
Reclassifications
2
69
78
13
(146)
14
Exchange differences
(32)
(86)
(7)
(13)
(138)
At 31 December 2023
1,883
4,962
1,006
412
8,263
Additions
21
129
108
245
503
Transferred to assets held for sale
3
(33)
(51)
–
(2)
(86)
Disposals/write-offs
(23)
(142)
(17)
(4)
(186)
Reclassifications
2
46
67
3
(116)
–
Reclassification from right-of-use assets
11
–
–
–
11
Exchange differences
(23)
(55)
(1)
–
(79)
At 31 December 2024
1,882
4,910
1,099
535
8,426
Accumulated depreciation and impairment:
At 1 January 2023
695
3,507
413
9
4,624
Charge for the year
4
70
296
40
–
406
Impairment
5
4
6
1
6
17
Transferred to current assets
1
(48)
(61)
–
–
(109)
Disposals/write-offs
(18)
(299)
(25)
–
(342)
Reclassifications
2
17
(9)
8
(7)
9
Exchange differences
(11)
(56)
(3)
–
(70)
At 31 December 2023
709
3,384
434
8
4,535
Charge for the year
4
77
249
49
–
375
Impairment
5
2
23
–
–
25
Transferred to assets held for sale
3
(11)
(24)
–
–
(35)
Disposals/write-offs
(16)
(123)
(10)
–
(149)
Reclassifications
2
16
(16)
–
–
–
Exchange differences
(9)
(39)
(1)
–
(49)
At 31 December 2024
768
3,454
472
8
4,702
Net book value:
At 31 December 2024
1,114
1,456
627
527
3,724
At 31 December 2023
1,174
1,578
572
404
3,728
1 During 2023, the Group signed a service concession arrangement with a customer effective from 1 January 2024. Accordingly, assets that were derecognised were transferred to trade
receivables and other assets to reflect the nature of these assets as current assets
2 Includes reclassifications of assets under construction to the relevant classification in property, plant and equipment when available for use
3 At 31 December 2024 the Group held for sale the assets and liabilities of the naval propulsors & handling business. See note 27 for further detail
4 Depreciation is charged to cost of sales and commercial and administrative costs or included in the cost of inventory as appropriate
5 The carrying values of property, plant and equipment have been assessed during the year in line with IAS 36 Impairment of Assets. Material items of plant and equipment and aircraft and
engines are assessed for impairment together with other assets used in individual programmes – see potential triggers considered in note 9. 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 a result of this assessment, there
are no (2023: none) individually material impairment charges or reversals in the year
155
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
10 Property, plant and equipment continued
Property, plant and equipment includes:
2024
2023
Land and Plant and Aircraft and Land and Plant and Aircraft and
buildings equipment engines buildings equipment engines
£m £m £m £m £m £m
Assets held for use in leases where the Group
is the lessor:
Cost
6
36
861
6
38
760
Depreciation
(4)
(22)
(372)
(4)
(21)
(348)
Net book value
2
14
489
2
17
412
2024 2023
£m £m
Capital expenditure commitments
177
222
Cost of fully depreciated assets
2,286
2,084
The Group’s share of equity accounted entities’ capital commitments is £69m (2023: £16m).
156
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
11 Right-of-use assets
Land and Plant and Aircraft and
buildings equipment engines Total
£m £m £m £m
Cost:
At 1 January 2023
506
162
1,827
2,495
Additions/modification of leases
38
56
104
198
Acquisition of businesses
2
–
–
2
Disposals
(6)
(22)
(54)
(82)
Transferred to current assets
1
(4)
–
–
(4)
Reclassifications to PPE
(5)
–
(10)
(15)
Exchange differences
(18)
(2)
(3)
(23)
At 31 December 2023
513
194
1,864
2,571
Additions/modification of leases
28
73
37
138
Transferred to assets held for sale
2
(2)
(1)
–
(3)
Disposals
(8)
(17)
–
(25)
Reclassifications to PPE
(11)
–
–
(11)
Exchange differences
(3)
(3)
(4)
(10)
At 31 December 2024
517
246
1,897
2,660
Accumulated depreciation and impairment:
At 1 January 2023
230
84
1,120
1,434
Charge for the year
3
42
42
179
263
Impairment
4
3
6
62
71
Disposals
(6)
(22)
(54)
(82)
Reclassifications to PPE
(1)
–
(8)
(9)
Exchange differences
(9)
(1)
(1)
(11)
At 31 December 2023
259
109
1,298
1,666
Charge for the year
3
42
43
172
257
Impairment
4
3
2
3
8
Transferred to assets held for sale
2
(2)
–
–
(2)
Disposals
(7)
(17)
–
(24)
Exchange differences
(1)
(2)
(3)
(6)
At 31 December 2024
294
135
1,470
1,899
Net book value:
At 31 December 2024
223
111
427
761
At 31 December 2023
254
85
566
905
Right-of-use assets held for use in operating leases where the Group is the lessor:
Cost
18
–
1,897
1,915
Depreciation
(8)
–
(1,470)
(1,478)
Net book value at 31 December 2024
10
–
427
437
Cost
6
–
1,864
1,870
Depreciation
(3)
–
(1,298)
(1,301)
Net book value at 31 December 2023
3
–
566
569
1 During 2023, the Group signed a service concession arrangement with a customer effective from 1 January 2024. Accordingly, assets that were derecognised were transferred to trade
receivables and other assets to reflect the nature of these assets
2 At 31 December 2024 the Group held for sale the assets and liabilities of the naval propulsors & handling business. See note 27 for further detail
3 Depreciation is charged to cost of sales and commercial and administrative costs as appropriate
4 The carrying values of right-of-use assets have been assessed during the year in line with IAS 36 Impairment of Assets. Material items of plant and equipment and aircraft and engines are
assessed for impairment together with other assets used in individual programmes – see potential triggers considered in note 9. 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 a result of this assessment, the carrying
values of assets, where a trigger was identified, have been assessed by reference to value in use considering assumptions such as estimated future cash flows, product performance related
estimates and climate-related risks. During the year to 31 December 2024, an impairment charge of £8m has been recognised (2023: £71m)
157
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
12 Investments
Composition of the Group
The entities contributing to the Group’s financial results are listed on pages 192 to 197.
Where the Group does not own 100% of the shares of an undertaking, there are a number of arrangements with the other shareholder(s) that
give the Group the option or potential obligation to acquire the third parties’ shares. These arrangements have been assessed and are not
considered to have a significant value, individually or in aggregate.
The Group does not have any non-wholly owned subsidiaries that have a material non-controlling interest.
Equity accounted and other investments
Equity accounted
Other
1
Joint ventures
£m
£m
At 1 January 2023
422
36
Additions
9
–
Disposals
(5)
(1)
Share of retained profit
2
119
–
Reclassification of deferred profit to deferred income
3
(18)
–
Revaluation of other investments accounted for as FVOCI
–
(4)
Exchange differences
(50)
–
Share of OCI
2
–
At 1 January 2024
479
31
Additions
4
17
–
Impairment
(4)
–
Share of retained profit
2
95
–
Reclassification of deferred profit to deferred income
3
(2)
–
Revaluation of other investments accounted for as FVOCI
–
(2)
Revaluation of other investments accounted for as FVTPL
5
–
(24)
Exchange differences
11
–
Share of OCI
(4)
–
At 31 December 2024
592
5
1 Other investments includes unlisted investments of £nil (2023: £24m) and listed investments of £5m (2023: £7m)
2 See table below
3 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
4 Additions to investments of £17m (2023: £9m) relate to the joint venture, Beijing Aero Engine Services Company Limited
5 During the year the Group wrote down the value of an unlisted investment. This charge was recognised within net financing
Reconciliation of share of retained profit to the income statement and cash flow statement:
2024 2023
£m £m
Share of results of joint ventures and associates
137
139
Adjustments for intercompany trading
1
35
34
Share of results of joint ventures and associates to the Group
172
173
Dividends paid by joint ventures and associates to the Group (cash flow statement)
(77)
(54)
Share of retained profit above
95
119
1 During the year, the Group sold spare engines to Rolls-Royce & Partners Finance, a joint venture and subsidiary of Alpha Partners Leasing Limited. 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 2024 and 2023, profit deferred on the sale of engines was lower than
the release of that deferred in prior years
158
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
12 Investments continued
The following joint ventures are considered to be individually material to the Group:
Principal location
Activity
Ownership interest
Alpha Partners Leasing Limited (APL)
UK
Aero-engine leasing
50.0%
Hong Kong Aero Engine Services Limited (HAESL)
Hong Kong
Aero-engine repair and overhaul
50.0%
Singapore Aero Engine Services Pte Limited (SAESL)
Singapore
Aero-engine repair and overhaul
50.0%
Summarised financial information of the Group’s individually material joint ventures is as follows:
APL
HAESL
SAESL
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Revenue
400
371
4,017
3,214
2,469
2,224
Profit and total comprehensive income for the year
114
106
70
73
46
29
Dividends paid during the year
(63)
(5)
(69)
(67)
–
–
Profit for the year included the following:
Depreciation and amortisation
(150)
(166)
(11)
(11)
(18)
(20)
Interest income
12
15
–
–
8
7
Interest expense
(112)
(122)
(8)
(4)
(1)
(2)
Income tax expense
(41)
(37)
(17)
(14)
(3)
(2)
Current assets
345
336
1,129
1,103
1,154
954
Non-current assets
3,506
3,048
100
93
133
130
Current liabilities
(360)
(261)
(895)
(886)
(950)
(790)
Non-current liabilities
(2,662)
(2,358)
(95)
(73)
(8)
(8)
Net assets
829
765
239
237
329
286
Included in the above:
Cash and cash equivalents
190
223
4
12
129
99
Current financial liabilities
1
(244)
(165)
(10)
–
–
–
Non-current financial liabilities
1
(2,134)
(1,914)
(86)
(66)
(8)
(8)
Reconciliation to the carrying amount recognised in the Consolidated Financial Statements
Ownership interest
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
Group share of net assets above
415
383
120
119
165
143
Goodwill
–
–
37
36
11
11
Adjustments for intercompany trading
(386)
(383)
(7)
–
(4)
(4)
Included in the balance sheet
29
–
150
155
172
150
1 Excluding trade payables and other liabilities
The summarised aggregated results of the Group’s share of equity accounted investments is as follows:
Individually material joint
ventures (above)
Other joint ventures
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Profit and total comprehensive income for the year
115
104
18
37
133
141
Assets:
Non-current assets
1,870
1,637
245
159
2,115
1,796
Current assets
1,314
1,197
632
359
1,946
1,556
Liabilities:
1
Current liabilities
(1,102)
(969)
(536)
(264)
(1,638)
(1,233)
Non-current liabilities
(1,382)
(1,220)
(86)
(43)
(1,468)
(1,263)
Group adjustment for goodwill
48
47
–
–
48
47
Adjustment for intercompany trading
(397)
(387)
(14)
(37)
(411)
(424)
Included in the balance sheet
351
305
241
174
592
479
1
Liabilities include borrowings of:
(1,241)
(1,076)
(113)
(60)
(1,354)
(1,136)
159
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
13 Inventories
2024 2023
£m £m
Raw materials
544
516
Work in progress
1,715
1,679
Finished goods
2,833
2,653
5,092
4,848
Inventories stated at net realisable value
232
187
Amount of inventory write-down
56
79
Reversal of inventory write-down
15
21
14 Trade receivables and other assets
Current
Non-current
1
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Trade receivables
2,917
2,724
138
40
3,055
2,764
Prepayments
829
1,032
89
102
918
1,134
RRSA prepayment for LTSA parts
2
486
236
1,182
1,084
1,668
1,320
Receivables due on RRSAs
1,118
1,159
119
193
1,237
1,352
Amounts owed by joint ventures and associates
894
731
2
10
896
741
Other taxation and social security receivable
215
160
2
13
217
173
Costs to obtain contracts with customers
3
11
7
124
109
135
116
Other receivables and similar assets
4
529
478
58
45
587
523
6,999
6,527
1,714
1,596
8,713
8,123
Trade receivables and other assets are analysed as follows:
Financial instruments (note 20):
Trade receivables and similar items
5,188
4,857
Other non-derivative financial assets
366
332
Non-financial instruments
3,159
2,934
8,713
8,123
1 Trade receivables and other assets have been presented on the face of the balance sheet in line with the operating cycle of the business. Further disclosure is included in the table above
and relates to amounts not expected to be received in the next 12 months, in line with specific customer payment arrangements, including customers on payment plans
2 These amounts reflect the contractual share of EFH flows from customers paid to RRSA partners in return for the supply of parts in future periods under long-term supply contracts.
During the year £(262)m (2023: £(211)m) has been recognised in cost of sales in relation to parts supplied and used in the year
3 These are amortised over the term of the related contract in line with engine deliveries, resulting in amortisation of £8m (2023: £9m) in the year. There were no impairment losses
4 Other receivables includes unbilled recoveries relating to completed overhaul activity where the right to consideration is unconditional
The Group has adopted the simplified approach to provide for expected credit losses (ECLs), 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 ECLs for trade receivables and other assets has decreased by £3m to £239m (2023: decreased by £104m to £242m).
The assumptions and inputs used for the estimation of the ECLs are disclosed in the table below:
2024
2023
Trade receivables Trade receivables
and other Loss Average and other Loss Average
financial assets allowance ECL rate financial assets allowance ECL rate
£m £m % £m £m %
Credit rating C and above
2,179
(74)
3%
1,744
(102)
6%
Credit rating below C
28
(4)
14%
80
(6)
8%
Without credit rating
3,586
(161)
4%
3,607
(134)
4%
5,793
(239)
4%
5,431
(242)
4%
160
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
14 Trade receivables and other assets continued
The movements of the Group ECLs provision are as follows:
2024 2023
£m £m
At 1 January
(242)
(346)
Increases in loss allowance recognised in the income statement during the year
(130)
(80)
Loss allowance utilised
11
34
Releases of loss allowance previously provided
116
128
Transferred to assets held for sale
1
–
Exchange differences
5
22
At 31 December
(239)
(242)
15 Contract assets and liabilities
Current
Non-current
1
Total
2
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Contract assets
Contract assets with customers
886
534
598
481
1,484
1,015
Participation fee contract assets
38
26
291
201
329
227
924
560
889
682
1,813
1,242
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
The balance includes £955m (2023: £494m) of Civil Aerospace LTSA assets and £381m (2023: £410m) Defence LTSA assets. The increase in the
Civil Aerospace balance is driven by revenue recognised (when performance obligations have been completed during the year) being greater
than the amount invoiced on those contracts that have a contract asset balance. Revenue recognised relating to performance obligations
satisfied in previous years was £(42)m which reduced the contract asset (2023: £64m increased). No impairment losses in relation to these contract
assets (2023: none) have arisen during the year.
Participation fee contract assets have increased by £102m (2023: decreased by £16m) primarily due to the Civil Aerospace programme asset
impairment reversal of £132m (2023: £nil) referred to in note 9, offset by amortisation of £23m (2023: £15m) and foreign exchange on consolidation
of £7m (2023: £1m).
The absolute value of ECLs for contract assets has increased by £5m to £11m (2023: decreased by £15m to £6m).
Current
Non-current
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Contract liabilities
6,309
6,098
9,447
8,438
15,756
14,536
Contract liabilities are analysed as follows:
Financial instruments (note 20)
1,280
1,358
Non-financial instruments
14,476
13,178
15,756
14,536
During the year, £5,048m (31 December 2023: £3,813m) of the opening contract liability was recognised as revenue.
Contract liabilities have increased by £1,220m. The movement in the Group balance is primarily as a result of an increase in Civil Aerospace of
£1,179m. This is mainly a result of growth in LTSA liabilities of £1,565m (2024: £11,139m, 2023: £9,574m) driven almost wholly by large engines, with
customer invoicing in 2024 (based on EFH) being in advance of revenue recognised (based on costs incurred completing performance
obligations). The contract liability movement includes a decrease of £(354)m (2023: £168m increase) as a result of revenue being recognised in
relation to performance obligations satisfied in previous years. An increase in Power Systems of £67m is from the receipt of deposits in advance
of performance obligations being completed.
161
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
16 Cash and cash equivalents
2024 2023
£m £m
Cash at bank and in hand
714
739
Money-market funds
1,900
1,077
Short-term deposits
2,961
1,968
Cash and cash equivalents per the balance sheet
5,575
3,784
Overdrafts (note 17)
(2)
(53)
Cash and cash equivalents per cash flow statement (page 118)
5,573
3,731
Cash and cash equivalents at 31 December 2024 includes £245m (2023: £279m) that is not available for general use by the Group. This balance
includes £40m (2023: £40m) which is held in an account that is exclusively for the general use of Rolls-Royce Submarines Limited and £160m
(2023: £195m) which is held exclusively for the use of Rolls-Royce Saudi Arabia 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. There is no offsetting of financial instruments in the Group’s statement of financial position as at
31 December 2024 and 2023.
17 Borrowings and lease liabilities
Current
Non-current
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Unsecured
Overdrafts
2
53
–
–
2
53
Bank loans
4
3
3
–
7
3
0.875% Notes 2024 €550m
1
–
475
–
–
–
475
3.625% Notes 2025 $1,000m
1
795
–
–
770
795
770
3.375% Notes 2026 £375m
2
–
–
364
361
364
361
4.625% Notes 2026 €750m
3
–
–
620
649
620
649
5.75% Notes 2027 $1,000m
3
–
–
795
782
795
782
5.75% Notes 2027 £545m
–
–
543
542
543
542
1.625% Notes 2028 €550m
1
–
–
442
455
442
455
Other loans
–
–
9
9
9
9
Total unsecured
801
531
2,776
3,568
3,577
4,099
Lease liability – Land and buildings
44
42
405
382
449
424
Lease liability – Aircraft and engines
209
203
784
949
993
1,152
Lease liability – Plant and equipment
43
33
70
51
113
84
Total lease liabilities
296
278
1,259
1,382
1,555
1,660
Total borrowings and lease liabilities
1,097
809
4,035
4,950
5,132
5,759
All outstanding items described as loan notes above are listed on the London Stock Exchange
1 These notes are the subject of cross-currency interest rate swap agreements under which the Group has undertaken to pay floating 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
2 These notes are the subject of interest rate swap agreements under which the Group has undertaken to pay floating 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
3 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
During the year to 31 December 2024, the Group repaid a loan note of €550m in May 2024 in line with its maturity date.
162
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
17 Borrowings and lease liabilities continued
The Group has access to the following undrawn committed borrowing facilities at the end of the year:
Total
2024 2023
£m £m
Expiring within one year
–
–
Expiring after one year
2,500
3,500
Total undrawn facilities
2,500
3,500
Further details can be found in the going concern and liquidity statements on page 61.
In May 2024, the Group cancelled its undrawn £1bn UKEF-supported loan facility which was due to expire in 2027. The facility had remained
undrawn in the year.
In October 2024, the Group extended the maturity date of its undrawn £2.5bn revolving credit facility by one year to November 2027, with the
Group having the option to exercise a further one-year extension option, subject to the bank agreement at the time of exercise.
18 Leases
Leases as lessee
The net book value of right-of-use assets at 31 December 2024 was £761m (2023: £905m), with a lease liability of £1,555m (2023: £1,660m), per
notes 11 and 17, respectively. Leases that have not yet commenced to which the Group is committed have a future liability of £2m and consist of
mainly plant and equipment and properties. The consolidated income statement shows the following amounts relating to leases:
2024 2023
£m £m
Land and buildings depreciation and impairment
1
(45)
(45)
Plant and equipment depreciation and impairment
2
(45)
(48)
Aircraft and engines depreciation and impairment
3
(175)
(241)
Total depreciation and impairment charge for right-of-use assets
(265)
(334)
Adjustment of amounts payable under residual value guarantees within lease liabilities
3, 4
6
10
Expense relating to short-term leases of 12 months or less recognised as an expense on a straight line basis
2
(38)
(49)
Expense relating to variable lease payments not included in lease liabilities
3, 5
(8)
(5)
Total operating costs
(305)
(378)
Interest expense
6
(83)
(85)
Total lease expense
(388)
(463)
Income from sub-leasing right-of-use assets
29
31
Total amount recognised in the income statement
(359)
(432)
1 Included in cost of sales and commercial and administration costs depending on the nature and the 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. Where 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 dependent upon utilisation rather than a periodic charge
6 Included in financing costs
The total cash outflow for leases in 2024 was £421m (2023: £429m). Of this, £375m related to leases reflected in the lease liability, £38m to
short-term leases where lease payments are expensed on a straight-line basis and £8m 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�
Engine leases in the Civil Aerospace business often include clauses that require the engines to be returned to the lessor with specific levels of
usable life remaining or cash payments to the lessor. The costs of meeting these requirements are included in the lease payments. The amounts
payable are calculated based upon an estimate of the utilisation of the engines over the lease term, whether the engine is restored to the required
condition by performing an overhaul at our own cost or through the payments of amounts specified in the contract and any new contractual
arrangements arising when the current lease contracts end. Amounts due can vary depending on the level of utilisation of the engines, overhaul
activity prior to the end of the contract, and decisions taken on whether ongoing access to the assets is required at the end of the lease term.
During the year, adjustments to return conditions at the end of leases resulted in a credit of £6m to the income statement. The lease liability at
31 December 2024 included £297m relating to the cost of meeting these residual value guarantees in the Civil Aerospace business. Up to £76m
is payable in the next 12 months, £125m is due over the following four years and the remaining balance after five years.
163
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
18 Leases continued
Leases as lessor
The Group acts as lessor for engines to Civil Aerospace customers when they require engines to support their fleets. Lease agreements with the
lessees provide protection over the assets. Usage in excess of specified limits and damage to the engine while on lease are covered by variable
lease payment structures. Lessee bankruptcy risk is managed through ongoing monitoring of airline credit rating and, where applicable, the
Cape Town Convention on International Interests in Mobile Equipment (including a specific protocol relating to aircraft equipment); an
international treaty that creates common standards for the registration of lease contracts and establishes various legal remedies for default in
financing agreements, including repossession and the effect of particular states’ bankruptcy laws. Engines are only leased once the Group
confirm that appropriate insurance documentation is established that covers the engine assets to pre-agreed amounts. All such contracts are
operating leases. The Group also leases out a small number of properties, or parts of properties, where there is excess capacity under operating
leases�
2024 2023
£m £m
Operating lease income
1, 2
99
104
1 Includes variable lease payments received of £83m (2023: £87m) that do not depend on an index or a rate
2 Items of property, plant and equipment subject to an operating lease are disclosed in note 10
Total non-cancellable future operating lease rentals (undiscounted) are £71m (2023: £91m) with £10m (2023: £12m) due within one year, £38m
(2023: £43m) between one to five years and £23m (2023: £36m) after five years.
In a limited number of circumstances, the Group sublets properties that are treated as a finance lease when the arrangement transfers
substantially all the risks and rewards of ownership of the asset. At 31 December 2024, the total undiscounted lease payments receivable is £37m
(2023: £35m) on annual lease income of £5m (2023: £4m). The discounted finance lease receivable at 31 December 2024 is £29m (2023: £28m).
There was £nil (2023: £nil) finance income recognised during the year.
19 Trade payables and other liabilities
Current
Non-current
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Trade payables
1,526
1,608
–
–
1,526
1,608
Accrued liabilities
2,552
1,134
109
96
2,661
1,230
Customer discounts
1
1,035
1,018
866
773
1,901
1,791
Payables due on RRSAs
1,529
1,713
11
–
1,540
1,713
Deferred receipts from RRSA workshare partners
55
56
757
774
812
830
Amounts owed to joint ventures and associates
492
542
–
–
492
542
Government grants
2
26
30
24
54
50
84
Other taxation and social security
54
92
–
–
54
92
Other payables
3
740
703
198
230
938
933
8,009
6,896
1,965
1,927
9,974
8,823
Trade payables and other liabilities are analysed as follows:
Financial instruments (note 20):
Trade payables and similar items
6,205
5,091
Other non-derivative financial liabilities
2,642
2,521
Non-financial instruments
1,127
1,211
9,974
8,823
1 Customer discounts include customer concession credits. Revenue recognised comprises sales to the Group’s customers after such items. Customer concession credits are discounts
given to a customer upon the sale of goods or services. A liability is recognised to correspond with the recognition of revenue when the performance obligation is met, as set out on page
126. The largest element of the balance, approximately £1.4bn (2023: £1.2bn) arises when the Civil business delivers its engines to an airframer. A concession is often payable to the end
customer (e.g. an airline) on delivery of the aircraft from the airframer. The concession amounts are known and the payment date is reasonably certain, hence there is no significant
judgement or uncertainty associated with the timing of these amounts
2 During the year, £102m, (2023: £74m) of government grants were released to the income statement
3 Other payables includes payroll liabilities and HM Government UK levies
The Group’s payment terms with suppliers vary based 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 to its smaller suppliers, who are typically on 75-day payment terms, so that they are paid in 30 days.
In line with civil aviation industry practice, the Group offers a SCF programme in partnership with banks to enable suppliers (including joint
ventures who are on 90-day standard payment terms) to receive their payments sooner. This SCF programme is available to suppliers at their
discretion and does not change the Group’s rights and obligations with the suppliers or the timing of payment by the Group to settle its liabilities
arising from transactions with these suppliers.
At 31 December 2024, £594m of trade payables were within the scope of SCF arrangements of which suppliers had drawn £506m (2023: £418m),
with £243m (2023: £154m) drawn by joint ventures. In some cases the Group settles the costs incurred by joint ventures as a result of them
utilising SCF arrangements and, during the year to 31 December 2024, the Group incurred costs of £9m (2023: £28m). These costs are included
within cost of sales.
164
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20 Financial instruments
Carrying values and fair values of financial instruments
Assets
Liabilities
Total
Basis for Amortised
determining FVPL FVOCI cost FVPL Other
Notes fair value £m £m £m £m
£m
£m
2024
Other non-current asset investments
12
A
–
5
–
–
–
5
Trade receivables and similar items
14
B/C
–
9
5,179
–
–
5,188
Other non-derivative financial assets
14
B
–
–
366
–
–
366
Other assets
D/F
21
–
16
–
–
37
Derivative financial assets
1
C
298
–
–
–
–
298
Cash and cash equivalents
16
B
1,900
–
3,675
–
–
5,575
Borrowings
17
E/F
–
–
–
–
(3,577)
(3,577)
Lease liabilities
17
G
–
–
–
–
(1,555)
(1,555)
Derivative financial liabilities
1
C
–
–
–
(2,054)
–
(2,054)
Financial RRSAs
H
–
–
–
–
(7)
(7)
Other liabilities
H
–
–
–
–
(198)
(198)
C Shares
B
–
–
–
–
(23)
(23)
Trade payables and similar items
19
B
–
–
–
–
(6,205)
(6,205)
Other non-derivative financial liabilities
19
B
–
–
–
–
(2,642)
(2,642)
Contract liabilities
15
B
–
–
–
–
(1,280)
(1,280)
2,219
14
9,236
(2,054)
(15,487)
(6,072)
2023
Other non-current asset investments
12
A
24
7
–
–
–
31
Trade receivables and similar items
14
B/C
–
9
4,848
–
–
4,857
Other non-derivative financial assets
14
B
–
–
332
–
–
332
Other assets
D/F
32
–
12
–
–
44
Derivative financial assets
1
C
350
–
–
–
–
350
Cash and cash equivalents
16
B
1,077
–
2,707
–
–
3,784
Borrowings
17
E/F
–
–
–
–
(4,099)
(4,099)
Lease liabilities
17
G
–
–
–
–
(1,660)
(1,660)
Derivative financial liabilities
1
C
–
–
–
(2,228)
–
(2,228)
Financial RRSAs
H
–
–
–
–
(17)
(17)
Other liabilities
H
–
–
–
–
(163)
(163)
C Shares
B
–
–
–
–
(23)
(23)
Trade payables and similar items
19
B
–
–
–
–
(5,091)
(5,091)
Other non-derivative financial liabilities
19
B
–
–
–
–
(2,521)
(2,521)
Contract liabilities
15
B
–
–
–
–
(1,358)
(1,358)
1,483
16
7,899
(2,228)
(14,932)
(7,762)
1 In the event of counterparty default relating to derivative financial assets, derivative financial liabilities and £125m of cash and cash equivalents, offsetting would apply and financial assets
and liabilities held with the same counterparty would net off. If this occurred with every counterparty, total financial assets would be £26m (2023: £3m) and liabilities £1,657m (2023: £1,881m)
165
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
20 Financial instruments continued
Fair values equate to book values for both 2024 and 2023, with the following exceptions:
2024
2023
Basis for
determining Book value Fair value Book value Fair value
fair value £m £m £m £m
Other assets
F
16
16
12
12
Borrowings
E
(3,559)
(3,540)
(4,034)
(3,977)
Borrowings
F
(18)
(21)
(65)
(67)
Financial RRSAs
H
(7)
(7)
(17)
(16)
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 arm’s-length transaction. There have been no transfers during the year from or to Level 3 valuation. Fair values have been determined
with reference to available market information at the balance sheet date, using the methodologies described below.
A These primarily comprise unconsolidated companies where fair value approximates to the book value. Listed investments are valued using Level 1 methodology
B Fair values 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. Money market funds are valued using Level 1 methodology
C Fair values of derivative financial assets and liabilities and trade receivables held to collect or sell are estimated by discounting expected future contractual cash flows using prevailing
interest rate curves. For commodity derivatives, forward commodity prices are used to determine expected future cash flows. 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)
D Other assets are included on the balance sheet at fair value, derived from observable market prices or latest forecast (Level 2/Level 3). At 31 December 2024, Level 3 assets totalled
£14m (2023: £25m)
E 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)
F Other assets and 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 by discounting contractual future cash flows. (Level 2)
G 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)
H The fair value 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)
IFRS 13 Fair Value Measurement defines a three level valuation hierarchy:
Level 1 – quoted prices for similar instruments
Level 2 – directly observable market inputs other than Level 1 inputs
Level 3 – inputs not based on observable market data
Carrying values of other financial assets and liabilities
Foreign
exchange Commodity Interest rate Total Financial
contracts contracts
contracts
1
derivatives RRSAs Other C Shares Total
£m £m £m £m £m £m £m £m
2024
Non-current assets
10
1
110
121
–
5
–
126
Current assets
25
4
148
177
–
32
–
209
Assets
35
5
258
298
–
37
–
335
Current liabilities
(539)
(18)
–
(557)
–
(62)
(23)
(642)
Non-current liabilities
(1,364)
(22)
(111)
(1,497)
(7)
(136)
–
(1,640)
Liabilities
(1,903)
(40)
(111)
(2,054)
(7)
(198)
(23)
(2,282)
(1,868)
(35)
147
(1,756)
(7)
(161)
(23)
(1,947)
2023
Non-current assets
72
–
254
326
–
34
–
360
Current assets
10
6
8
24
–
10
–
34
Assets
82
6
262
350
–
44
–
394
Current liabilities
(351)
(10)
(13)
(374)
(10)
(41)
(23)
(448)
Non-current liabilities
(1,766)
(15)
(73)
(1,854)
(7)
(122)
–
(1,983)
Liabilities
(2,117)
(25)
(86)
(2,228)
(17)
(163)
(23)
(2,431)
(2,035)
(19)
176
(1,878)
(17)
(119)
(23)
(2,037)
1 Includes the foreign exchange impact of cross-currency interest rate swaps
166
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20 Financial instruments continued
Derivative financial instruments
The Group uses various financial instruments to manage its exposure to movements in foreign exchange rates. The Group uses commodity swaps
to manage its exposure to movements in the price of commodities (jet fuel, base metals, gas and power). To hedge the currency risk associated
with a borrowing denominated in a foreign currency, the Group has currency derivatives designated as part of fair value or cash flow hedges.
The Group uses interest rate swaps and forward rate agreements to manage its exposure to movements in interest rates.
Movements in the fair values of derivative financial assets and liabilities were as follows:
Foreign exchange Interest rate instruments Interest rate instruments
instruments
Commodity instruments
– hedge accounted
1
– non-hedge accounted
Total
2024 2023 2024 2023 2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m £m £m £m £m
At 1 January
(2,035)
(3,851)
(19)
62
45
125
131
213
(1,878)
(3,451)
Movements in fair
value hedges
–
–
–
–
(32)
(71)
–
–
(32)
(71)
Movements in cash
flow hedges
–
–
–
–
(23)
(78)
–
–
(23)
(78)
Movements in other
derivative contracts
2
(631)
574
(18)
(60)
–
–
40
1
(609)
515
Contracts settled
798
1,242
2
(21)
64
69
(78)
(83)
786
1,207
At 31 December
(1,868)
(2,035)
(35)
(19)
54
45
93
131
(1,756)
(1,878)
1 Includes the foreign exchange impact of cross-currency interest rate swaps
2 Included in net financing
Financial risk and revenue sharing arrangements (RRSAs) and other financial assets and liabilities
The Group has financial liabilities arising from financial RRSAs that are valued at each reporting date using the amortised cost method. This
involves calculating the present value of the forecast cash flows of the arrangements using the internal rate of return at the inception of the
arrangements as an appropriate discount rate. Other liabilities includes royalties payable to airframers where the present value of the liability is
calculated using the Group’s average borrowing rate as that reflects the nature of the balance in line with the effective interest method. In each
case below, the fair value of the assets and liabilities reflect a level 3 valuation.
Movements in the carrying values were as follows:
Financial RRSAs
Other – assets
Other – liabilities
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
At 1 January
(17)
(22)
25
25
(163)
(101)
Exchange adjustments included in OCI
1
1
–
–
(5)
2
Additions
–
–
–
–
(34)
(80)
Financing charge
1
–
–
(11)
–
(9)
(8)
Excluded from underlying profit/(loss):
Changes in forecast payments
1
–
(1)
–
–
–
–
Cash paid
9
5
–
–
12
11
Other
–
–
–
–
1
13
At 31 December
(7)
(17)
14
25
(198)
(163)
1 Included in net financing
167
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
20 Financial instruments continued
Effect of hedging instruments on the financial position and performance
To manage the risk of changes in the fair values of fixed rate borrowings (the hedged items), the Group has entered into fixed-to-floating interest
rate swaps and cross currency interest rate swaps (the hedging instruments), which, for accounting purposes, are designated as fair value hedges.
The impact of fair value hedges on the financial position and performance of the Group is as follows:
Hedged item
1
Hedging instrument
2
Hedge
FV FV FV ineffect-
adjustment adjustment Carrying Carrying movement iveness Weighted
in the since Carrying amount amount in the in the Weighted average
Nominal period inception amount Nominal asset liability period
period
3
average interest
£m £m £m £m £m £m £m £m £m FX rate rate
At 31 December 2024
Sterling
(375)
(3)
11
(364)
375
–
(12)
3
–
1.00 SONIA +
0.89
USD
(658)
(25)
(137)
(795)
658
128
–
25
–
1.52 SONIA +
1.47
Euro
(484)
13
42
(442)
484
–
(54)
(11)
2
1.14 SONIA +
1.09
At 31 December 2023
Sterling
(375)
(10)
14
(361)
375
–
(14)
10
–
1�00 SONIA +
0�89
USD
(658)
31
(112)
(770)
658
104
–
(30)
1
1�52 SONIA +
1.47
Euro
(968)
(14)
37
(931)
968
–
(56)
16
2
1�14 SONIA +
0�92
1 Hedged items are included in borrowings in the balance sheet
2 Hedging instruments are included in other financial assets or liabilities in the balance sheet
3 Hedge ineffectiveness is included in net financing in the income statement
To manage the foreign exchange rate risk in cash flows on fixed rate non-GBP borrowings (the hedged items), the Group has entered into
fixed-to-fixed cross-currency interest rate swaps (the hedging instruments) to hedge the cash flows into GBP, which, for accounting purposes,
are designated as cash flow hedges.
The impact of cash flow hedges on the financial position and performance of the Group is as follows:
Hedged item
Hedging instrument
1
Hedging reserves
Hedge
FV Carrying FV ineffect- Closing
movement amount movement iveness Weighted Amount Recycled cash flow
in the asset/ in the in the Weighted average recognised to net hedge
Nominal period Nominal (liability) period
period
2
average interest in OCI financing reserve
£m £m £m £m £m £m FX rate rate £m £m £m
At 31 December 2024
USD
(772)
(15)
772
37
9
(6)
1.29
5.33
(19)
15
(9)
Euro
(677)
28
677
(45)
(28)
–
1.11
5.45
36
(38)
(10)
At 31 December 2023
USD
(772)
65
772
28
(62)
3
1�29
5�33
61
(41)
(5)
Euro
(677)
14
677
(17)
(14)
–
1�11
5�45
21
(20)
(8)
1 Hedging instruments are included in other financial assets or liabilities in the balance sheet
2 Hedge ineffectiveness is included in net financing in the income statement
168
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20 Financial instruments continued
Risk management policies and hedging activities
The principal financial risks to which the Group is exposed are: foreign currency exchange rate risk; liquidity risk; credit risk; interest rate risk;
and commodity price risk. The Board has approved policies for the management of these risks.
Foreign currency exchange rate risk – The Group has significant cash flows (most significantly USD, followed by the euro) denominated in
currencies other than the functional currency of the relevant trading entity. To manage its exposures to changes in values of future foreign
currency cash flows, so as to maintain relatively stable long-term foreign exchange rates on settled transactions, the Group enters into derivative
forward foreign currency transactions. In addition, the Group enters in to fixed-to-floating cross-currency interest rate swaps to manage its
exposure to changes in fair value as a result of foreign exchange risk. See below.
The Group economically hedges its GBP/USD exposure by forecasting highly probable net USD receipts up to five years forward. Hedges are
taken out within prescribed maximum and minimum hedge positions set out in the Group FX Policy. The maximum and minimum policy bands
decline gradually over the five-year horizon and are calculated as a percentage of forecast net income. A similar policy is operated for the Group’s
EUR/USD exposure. For accounting purposes, these derivative contracts are not designated in hedging relationships.
The Group also has exposures to cash flows on EUR and USD denominated fixed rate borrowings. To manage its exposures to changes in values
of future foreign currency cash flows, the Group has entered into fixed-to-fixed cross-currency interest rate swaps, which, for accounting
purposes, are designated as cash flow hedges. The swaps have similar critical terms to the hedged items, such as the initial exchange amounts,
payment dates and maturities. Therefore, there is an economic relationship and the hedge ratio is established as 1:1. Possible sources of
ineffectiveness in the cash flow hedge relationship are changes in the credit risk of either party to the interest rate swap. Another possible source
of ineffectiveness would be if the notional of the borrowings is less than the notional of the derivative, for example, in the event of a partial
repayment of hedged debt prior to its maturity.
The Group regards its interests in overseas subsidiary companies as long-term investments. The Group aims to match its translational exposures
by matching the currencies of assets and liabilities.
Liquidity risk – The Group’s policy is to hold financial investments and maintain undrawn committed facilities at a level sufficient to ensure that
the Group has available funds to meet its medium-term capital and funding obligations and to meet any unforeseen obligations and
opportunities. The Group holds cash and short-term investments, which, together with the undrawn committed facilities, enable the Group to
manage its liquidity risk.
Credit risk – The Group is exposed to credit risk to the extent of non-payment by either its customers or the counterparties of its financial
instruments. The effective monitoring and controlling of credit risk is a key component of the Group’s risk management activities. The Group has
credit policies covering both trading and financial exposures. Credit risks arising from treasury activities are managed by a central treasury
function in accordance with the Group credit policy. The objective of the policy is to diversify and minimise the Group’s exposure to credit risk
from its treasury activities by ensuring the Group transacts strictly with ‘BBB’ or higher rated financial institutions based on pre-established
limits per financial institution. At the balance sheet date, there were no significant concentrations of credit risk to individual customers or
counterparties. The Group’s revenue is generated from customers located across multiple geographical locations (see note 2). These customers
are typically: airframers and airline operators relating to Civil Aerospace; government defence departments for the UK and US; and multiple
smaller entities for Power Systems. Whilst there are a limited number of customers related to Civil Aerospace and Defence, they are spread across
various geographical locations. The maximum exposure to credit risk at the balance sheet date is represented by the carrying value of each
financial asset, including derivative financial instruments.
Interest rate risk – The Group’s interest rate risk is primarily in relation to its fixed rate borrowings (fair value risk), floating rate borrowings and
cash and cash equivalents (cash flow risk). Interest rate derivatives are used to manage the overall interest rate profile of the Group. The fixed
or floating rate interest rate decision on long-term borrowings is determined for each new agreement at the point it is entered into. The
aggregate interest rate position of the Group is reviewed regularly and can be revised at any time in order to react to changes in market
conditions or circumstances.
The Group also has exposures to the fair values of non-derivative financial instruments such as EUR, GBP and USD fixed rate borrowings. To
manage the risk of changes in these fair values, the Group has entered into fixed-to-floating interest rate swaps and cross-currency interest rate
swaps, which, for accounting purposes, are designated as fair value hedges. The swaps have similar critical terms to the hedged items, such as
the reference rate, reset dates, notional amounts, payment dates and maturities. Therefore, there is an economic relationship and the hedge
ratio is established as 1:1. Possible sources of ineffectiveness in the fair value hedge relationship are changes in the credit risk of either party to
the interest rate swap and, for cross-currency interest rate swaps, the cross-currency basis risk as this risk is present in the hedging instrument
only. Another possible source of ineffectiveness would be if the notional of the borrowings is less than the notional of the derivative, for example
in the event of a partial repayment of hedged debt prior to its maturity.
The Group has exposure to changes in cash flows due to changes in interest rates. To manage this risk, the Group has entered into floating-to-
fixed interest rate swaps to hedge a proportion of its floating rate exposure to fixed rates. The swaps have similar critical terms to the floating
leg of swaps that form part of the fair value hedges, such as the reference rate, reset dates, notional amounts, payment dates and maturities. For
accounting purposes, these derivative contracts are generally not designated as hedging instruments.
Commodity price risk – The Group has exposures to the price of jet fuel, base metals, gas and power arising from business operations. To minimise
its cash flow exposures to changes in commodity prices, the Group enters into derivative commodity transactions. The commodity hedging
policy is similar to the Group FX policy, in that the Group forecasts highly probable exposures to commodities, and takes out hedges within
prescribed maximum and minimum levels as set out in the policy. The maximum and minimum policy bands decline gradually over time. For
accounting purposes, these derivative contracts are generally not designated in hedging relationships.
Other price risk – The Group’s cash equivalent balances represent investments in money-market instruments, with a term of up to three months.
The Group does not consider that these are subject to significant price risk.
169
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
20 Financial instruments continued
Derivative financial instruments
The nominal amounts, analysed by year of expected maturity, and fair values of derivative financial instruments are as follows:
Expected maturity
Fair value
Between Between
Nominal Within one and two and
amount one year two years five years Assets Liabilities
£m £m £m £m £m £m
At 31 December 2024
Foreign exchange contracts:
Non-hedge accounted
20,728
8,018
5,781
6,929
35
(1,903)
Interest rate contracts:
Fair value hedges
1,517
658
375
484
128
(66)
Cash flow hedges
1,449
–
677
772
37
(45)
Non-hedge accounted
1,517
658
375
484
93
–
Commodity contracts:
Non-hedge accounted
330
137
108
85
5
(40)
25,541
9,471
7,316
8,754
298
(2,054)
At 31 December 2023
Foreign exchange contracts:
Non-hedge accounted
15,972
6,965
4,341
4,666
82
(2,117)
Interest rate contracts:
Fair value hedges
2,001
484
658
859
103
(69)
Cash flow hedges
1,449
–
–
1,449
28
(17)
Non-hedge accounted
2,001
484
658
859
131
–
Commodity contracts:
Non-hedge accounted
257
102
73
82
6
(25)
21,680
8,035
5,730
7,915
350
(2,228)
As described above, all derivative financial instruments are entered into for risk management purposes, although these may not be designated
into hedging relationships for accounting purposes.
Currency analysis
Foreign exchange contracts are denominated in the following currencies:
Nominal amount of currencies purchased forward
Sterling USD Euro Other Total
£m £m £m £m £m
At 31 December 2024
Currencies sold forward:
Sterling
–
882
41
59
982
USD
14,654
–
4,419
287
19,360
Euro
35
290
–
26
351
Other
At 31 December 2023
3
1
31
–
35
Currencies sold forward:
Sterling
–
1,573
–
115
1,688
USD
11,389
–
2,316
303
14,008
Euro
53
171
–
21
245
Other
6
3
22
–
31
The nominal value of interest rate and commodity contracts are denominated in the following currencies:
2024 2023
£m £m
Sterling
1,915
2,376
USD
1,719
1,671
Euro
1,179
1,661
170
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20 Financial instruments continued
Non-derivative financial instruments are denominated in the following currencies:
Sterling USD Euro Other Total
£m £m £m £m £m
At 31 December 2024
Other non-current asset investments
–
5
–
–
5
Trade receivables and similar items
301
4,346
460
81
5,188
Other non-derivative financial assets
73
242
40
11
366
Other assets
–
21
16
–
37
Cash and cash equivalents
2,251
1,283
1,867
174
5,575
Assets
2,625
5,897
2,383
266
11,171
Borrowings
(908)
(1,594)
(1,072)
(3)
(3,577)
Lease liabilities
(237)
(1,074)
(49)
(195)
(1,555)
Financial RRSAs
–
(6)
(1)
–
(7)
Other liabilities
(39)
(159)
–
–
(198)
C Shares
(23)
–
–
–
(23)
Trade payables and similar items
(1,006)
(4,701)
(423)
(75)
(6,205)
Other non-derivative financial liabilities
(350)
(2,084)
(158)
(50)
(2,642)
Contract liabilities
–
(1,280)
–
–
(1,280)
Liabilities
(2,563)
(10,898)
(1,703)
(323)
(15,487)
62
(5,001)
680
(57)
(4,316)
At 31 December 2023
Other non-current asset investments
10
21
–
–
31
Trade receivables and similar items
219
4,039
513
86
4,857
Other non-derivative financial assets
94
163
58
17
332
Other assets
–
22
22
–
44
Cash and cash equivalents
1,242
869
1,463
210
3,784
Assets
1,565
5,114
2,056
313
9,048
Borrowings
(904)
(1,605)
(1,590)
–
(4,099)
Lease liabilities
(195)
(1,222)
(45)
(198)
(1,660)
Financial RRSAs
–
(7)
(10)
–
(17)
Other liabilities
(32)
(131)
–
–
(163)
C Shares
(23)
–
–
–
(23)
Trade payables and similar items
(976)
(3,561)
(493)
(61)
(5,091)
Other non-derivative financial liabilities
(334)
(2,008)
(134)
(45)
(2,521)
Contract liabilities
–
(1,358)
–
–
(1,358)
Liabilities
(2,464)
(9,892)
(2,272)
(304)
(14,932)
(899)
(4,778)
(216)
9
(5,884)
171
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
20 Financial instruments continued
Currency exposures
The Group’s actual currency exposures on financial instruments after taking account of derivative foreign currency contracts, which are not
designated as hedging instruments for accounting purposes are as follows:
Sterling USD Euro Other Total
Functional currency of Group operations £m £m £m £m £m
At 31 December 2024
Sterling
–
–
–
1
1
USD
(11)
–
–
(2)
(13)
Euro
–
7
–
15
22
Other
At 31 December 2023
55
37
68
–
160
Sterling
–
–
–
5
5
USD
(6)
–
1
–
(5)
Euro
1
4
–
(2)
3
Other
109
38
40
–
187
Ageing beyond contractual due date of financial assets
Between
Up to three
three months and More than
Within months one year one year
terms overdue overdue overdue Total
£m £m £m £m £m
At 31 December 2024
Other non-current asset investments
5
–
–
–
5
Trade receivables and similar items
4,738
324
82
44
5,188
Other non-derivative financial assets
331
32
–
3
366
Other assets
28
9
–
–
37
Derivative financial assets
298
–
–
–
298
Cash and cash equivalents
5,575
–
–
–
5,575
10,975
365
82
47
11,469
At 31 December 2023
Other non-current asset investments
31
–
–
–
31
Trade receivables and similar items
4,054
650
87
66
4,857
Other non-derivative financial assets
328
–
4
–
332
Other assets
44
–
–
–
44
Derivative financial assets
350
–
–
–
350
Cash and cash equivalents
3,784
–
–
–
3,784
8,591
650
91
66
9,398
172
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
20 Financial instruments continued
Contractual maturity analysis of non-derivative financial liabilities
Gross values
Between Between
Within one and two and After Carrying
one year two years five years five years value
£m £m £m £m £m
At 31 December 2024
Borrowings
(961)
(1,109)
(1,893)
(16)
(3,577)
Lease liabilities
(365)
(324)
(533)
(1,189)
(1,555)
Financial RRSAs
(1)
–
(1)
(4)
(7)
Other liabilities
(61)
(11)
(25)
(101)
(198)
C Shares
(23)
–
–
–
(23)
Trade payables and similar items
(6,054)
(21)
(67)
(63)
(6,205)
Other non-derivative financial liabilities
(1,700)
(316)
(297)
(329)
(2,642)
Contract liabilities
(1,280)
–
–
–
(1,280)
(10,445)
(1,781)
(2,816)
(1,702)
(15,487)
At 31 December 2023
Borrowings
(694)
(943)
(3,042)
(14)
(4,099)
Lease liabilities
(358)
(366)
(697)
(735)
(1,660)
Financial RRSAs
(10)
–
(1)
(4)
(17)
Other liabilities
(42)
(6)
(25)
(90)
(163)
C Shares
(23)
–
–
–
(23)
Trade payables and similar items
(4,952)
(15)
(47)
(77)
(5,091)
Other non-derivative financial liabilities
(1,646)
(235)
(267)
(373)
(2,521)
Contract liabilities
(1,358)
–
–
–
(1,358)
(9,083)
(1,565)
(4,079)
(1,293)
(14,932)
Expected maturity analysis of derivative financial instruments
Gross values
Between Between
Within one and two and Carrying
one year two years five years value
£m £m £m £m
At 31 December 2024
Derivative financial assets:
Cash inflows
1,940
605
1,089
Cash outflows
(1,780)
(592)
(1,054)
Other net cash flows
1
66
25
24
226
38
59
298
Derivative financial liabilities:
Cash inflows
6,988
5,866
7,154
Cash outflows
(7,959)
(6,524)
(7,850)
Other net cash flows
1
(30)
(11)
(11)
(1,001)
(669)
(707)
(2,054)
At 31 December 2023
Derivative financial assets:
Cash inflows
2,024
1,943
2,333
Cash outflows
(2,021)
(1,805)
(2,311)
Other net cash flows
1
88
43
33
91
181
55
350
Derivative financial liabilities:
Cash inflows
5,535
3,296
4,377
Cash outflows
(6,418)
(4,027)
(5,189)
Other net cash flows
1
(21)
(13)
(3)
(904)
(744)
(815)
(2,228)
1 Derivative financial assets and liabilities that are settled on a net cash basis
173
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
20 Financial instruments continued
Interest rate risk
In respect of income-earning financial assets and interest-bearing financial liabilities, the following table indicates their effective interest rates.
The value shown is the carrying amount before taking account of swaps.
2024
2023
Fixed rate Floating rate Total Fixed rate Floating rate Total
£m £m £m £m £m £m
Cash and cash equivalents
1
–
5,575
5,575
–
3,784
3,784
Borrowings
(3,563)
(14)
(3,577)
(4,036)
(63)
(4,099)
Lease liabilities
(1,298)
(257)
(1,555)
(1,269)
(391)
(1,660)
(4,861)
5,304
443
(5,305)
3,330
(1,975)
Weighted average interest rates
Borrowings
4.0%
5.0%
3.7%
5.9%
Lease liabilities
2
4.9%
5.8%
4.6%
6.8%
1 Cash and cash equivalents comprises bank balances and term deposits and earn interest based on short-term floating market interest rates
2 Interest rates for lease liabilities are considered to be the discount rates at the balance sheet date
None (2023: none) of the Group’s borrowings are subject to financial covenants and there are no rating triggers contained in any of the Group’s
facilities that could require the Group to accelerate or repay any facility for a given movement in the Group’s credit rating.
£106m (2023: £105m) of the Group’s lease liabilities include a customary loan-to-value covenant. The Group has several contractual cures
available in the event the stipulated loan-to-value ratio is exceeded. Failure by the Group to satisfy its contractual obligations under the covenant
gives rights to the lessor to terminate its lease and claim termination amounts for the outstanding lease balance. At 31 December 2024 none
(2023: none) of these were in breach.
Sensitivity analysis
2024 2023
Sensitivities at 31 December (all other variables held constant) – impact on profit after tax and equity £m £m
Sterling 10% weaker against the USD
(1,506)
(1,207)
Sterling 10% stronger against the USD
1,232
988
Euro 10% weaker against the USD
(358)
(176)
Euro 10% stronger against the USD
293
144
Sterling 10% weaker against the Euro
(27)
(17)
Sterling 10% stronger against the Euro
22
14
Commodity prices 10% lower
(20)
(17)
Commodity prices 10% higher
20
17
Interest rates 50 basis points lower
(40)
(43)
Interest rates 50 basis points higher
39
42
C Shares and payments to shareholders
The Company has historically issued non-cumulative redeemable preference shares (C Shares) as an alternative to paying a cash dividend.
C Shares in respect of a year were issued in the following year. Shareholders are able to redeem any number of their C Shares for cash. Any
C Shares retained attract a dividend of Bank of England base rate on the 0.1p nominal value of each share, paid on a twice-yearly basis, and have
limited voting rights. The Company has the option to compulsorily redeem the C Shares, at any time, if the aggregate number of C Shares in issue
is less than 10% of the aggregate number of C Shares issued, or on the acquisition or capital restructuring of the Company.
Movements in issued and fully paid C Shares during the year were as follows:
2024
2023
Millions
Millions
At 1 January
23,153
23,855
Redeemed
(647)
(702)
At 31 December
22,506
23,153
Payments to shareholders represent the value of C Shares to be issued in respect of the results for the year. There have been no issues (2023:
no issues) of C Shares declared in respect of the year to 31 December 2024.
174
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
21 Provisions for liabilities and charges
Charged to At
At 1 January income Transfers to Exchange 31 December
2024
statement
1
Reversed Utilised held for sale differences 2024
£m £m £m £m £m £m £m
Onerous contracts
1,472
558
(374)
(218)
(3)
(2)
1,433
Warranty and guarantees
306
158
(13)
(87)
–
(10)
354
Trent 1000 wastage costs
116
2
–
(82)
–
–
36
Employer liability claims
24
5
(1)
(2)
–
(1)
25
Transformation and restructuring
9
101
(12)
(35)
–
(1)
62
Tax related interest and penalties
22
3
(5)
(4)
–
–
16
Claims and litigation
43
1
(16)
(3)
–
–
25
Other
37
22
(2)
(13)
–
(1)
43
2,029
850
(423)
(444)
(3)
(15)
1,994
Current liabilities
532
589
Non-current liabilities
1,497
1,405
1 The charge to the income statement within net financing includes £47m (2023: £59m) as a result of the unwinding of the discounting of provisions previously recognised
Onerous contracts
Onerous contract provisions are recorded when the direct costs to fulfil a contract are assessed as being greater than the expected
recoverable amount. Onerous contract provisions are measured on a fully costed basis and during the year £218m (2023: £185m) of the
provisions have been utilised. Additional contract losses for the Group of £558m (2023: £500m) have been recognised. These are mainly a result
of increases in the estimate of future LTSA costs due to prolonged supply chain challenges, inflationary cost increases and implementing required
product modifications that could cause some disruption to the throughput of engine overhauls. Contract losses of £374m (2023: £433m)
previously recognised have been reversed following improvements to the forecast revenue, cost estimates and time on wing across various
engine programmes as a result of operational improvements, contractual renegotiations and extensions. The Group continues to monitor the
onerous contract provision for changes in the market and revises the provision as required. The value of the remaining onerous contract
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 eight to 16 years.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets requires a company to recognise any impairment loss that has occurred on assets
used in fulfilling the contract before recognising a separate provision for an onerous contract. No impairments were required for any of the
assets solely used in the fulfilment of onerous contracts.
The Trent 1000 intangible assets (certification costs and development costs) and Trent 1000 spare engines (right of use and owned) are tested
for impairment as part of the Trent 1000 Cash generating unit (CGU) and no impairment was required.
Warranty and guarantees
Provisions for warranty and guarantees 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.
Trent 1000 wastage 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 £82m (2023: £79m) of the Trent 1000 wastage costs
provision. This represents customer disruption costs and remediation shop visit costs. During the year, a net charge to the provision of £2m (2023:
£16m) has been recognised reflecting the discount unwind. The value of the remaining provision reflects the single most likely outcome and is
expected to be utilised in 2025.
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.
Transformation and restructuring
In 2023, the Group announced a major multi-year transformation programme consisting of seven workstreams, set out in the 2022 Annual Report.
During the year, the Group made progress against those workstreams and as a result of the details communicated, a provision of £101m (2023:
£2m) has been recorded and recognised in cost of sales and commercial and administration costs. During the year £35m (2023: £2m) was utilised
and £12m reversed (2023: nil) as part of these plans and a further £2m (2023: £4m) has been charged directly to the income statement. The
remaining provision is expected to be utilised by 31 December 2025.
175
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
21 Provisions for liabilities and charges continued
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.
Claims and litigation
Provisions for claims and litigation represent ongoing matters where the outcome for the Group may be unfavourable.
The balance also includes the best estimate of any retained exposure by the Group’s captive insurance company for any claims that have been
incurred but not yet reported to the Group, as that entity retains a portion of the exposures it insures on behalf of the remainder of the Group.
Such exposures 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.
Other
Other items are individually immaterial. The value of any remaining provisions reflects the single most likely outcome in each case.
22 Post-retirement benefits
The Group operates a number of defined benefit and defined contribution schemes:
— The UK defined benefit scheme is funded, with the assets held in a separate UK trust. The scheme closed to future accrual on 31 December
2020 for all active members and there are no new defined benefit accruals in the UK scheme. As at 31 December 2024, the scheme was
estimated to be funded at 119% on the Technical Provisions basis.
— The Group also operates a large trust-based defined contribution scheme for current employees in the UK (Rolls-Royce Retirement Savings
Trust). Pension contributions are generally paid as a salary sacrifice under which employees agree to a reduction in gross contractual pay in
return for the Group making additional pension contributions on their behalf. As a result, there is a decrease in wages and salaries and a
corresponding increase in pension costs of £88m (2023: £72m) in the year.
— Overseas defined benefit schemes are a mixture of funded and unfunded plans and provide benefits in line with local practice. Additionally,
in the US, and to a lesser extent in some other countries, the Group’s employment practices include the provision of healthcare and life
insurance benefits for retired employees. These healthcare schemes are unfunded.
The valuations of the defined benefit schemes are based on the results of the most recent funding valuation from 31 March 2023, where relevant,
updated by the scheme actuaries to 31 December 2024.
Other
Virgin Media
The Group is aware of a UK High Court legal ruling that took place in June 2023 between Virgin Media Limited and NTL Pension Trustees II
Limited, which decided that certain historic rule amendments were invalid if they were not accompanied by actuarial certifications. The ruling
was subject to an appeal with a judgment delivered on 25 July 2024. The Court of Appeal unanimously upheld the decision of the High Court
and concluded that the pre-April 2013 conditions applied to amendments to both future and past service. Whilst this ruling was in respect of
another scheme, this judgment will need to be reviewed for its relevance to the RRUKPF scheme, and other UK schemes. A high-level review has
been undertaken of the UK Schemes which concluded that there is a very low risk of any historic plan amendments being found to be invalid.
The Company’s pension advisers have not completed detailed numerical analysis and no adjustments have been made to the Consolidated
Financial Statements at 31 December 2024. There is a separate legal case which is due to be taken to the High Court in early 2025, this is expected
to provide further clarification on several outstanding points of detail relevant to this case.
Barber adjustment
In 2018, an estimated cost of equalising normal retirement ages between men and women arising from the Barber judgement in 1990 was
recognised. While the Rolls-Royce schemes were equalised under these principles in the period after the original Barber ruling, further work
has been carried out by the pension scheme administrators and the Scheme Actuary in 2024 to review all relevant data points and make further
changes to member records and required payments. This work has resulted in a past service charge of £14m being recognised in the income
statement of the Consolidated Financial Statements at 31 December 2024.
176
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22 Post-retirement benefits continued
Amounts recognised in the income statement
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
Defined benefit schemes:
Current service cost and administrative expenses
5
37
42
8
35
43
Past-service cost/(credit) and settlement loss
14
–
14
–
(2)
(2)
19
37
56
8
33
41
Defined contribution schemes
228
101
329
195
98
293
Operating cost
247
138
385
203
131
334
Net financing (credit)/charge in respect of defined benefit schemes
(35)
37
2
(29)
41
12
Total income statement charge
212
175
387
174
172
346
The operating cost is charged as follows:
Defined benefit
Defined contribution
Total
2024 2023 2024 2023 2024 2023
£m £m £m £m £m £m
Cost of sales
30
33
227
211
257
244
Commercial and administrative costs
20
2
51
41
71
43
Research and development costs
6
6
51
41
57
47
56
41
329
293
385
334
Net financing comprises:
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
Financing on scheme obligations
200
61
261
218
66
284
Financing on scheme assets
(235)
(24)
(259)
(247)
(25)
(272)
Net financing (income)/charge in respect of defined benefit schemes
(35)
37
2
(29)
41
12
Financing income on scheme surpluses
(35)
(2)
(37)
(29)
(1)
(30)
Financing cost on scheme deficits
–
39
39
–
42
42
Amounts recognised in OCI in respect of defined benefit schemes
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
Actuarial gains and losses arising from:
Demographic assumptions
1
19
(10)
9
180
–
180
Financial assumptions
2
617
56
673
(132)
(63)
(195)
Experience adjustments
3
(8)
(14)
(22)
116
1
117
Return on scheme assets excluding financing income
2
(633)
(5)
(638)
(12)
26
14
(5)
27
22
152
(36)
116
1 For the UK Scheme, this reflects latest available CMI mortality projections and an update of the post-retirement mortality assumptions based on an analysis prepared for the 31 March 2023
funding valuation
2 Actuarial gains and losses arising from financial assumptions arise primarily due to changes in discount rate and inflation
3 This reflects an experience gain as a result of allowance for updated membership data following the valuation during the year offset by realised inflation being higher than expected in
the period
177
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
22 Post-retirement benefits continued
Amounts recognised in the balance sheet in respect of defined benefit schemes
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
Present value of funded obligations
(3,958)
(986)
(4,944)
(4,537)
(993)
(5,530)
Fair value of scheme assets
4,737
531
5,268
5,304
520
5,824
Net asset/(liability) on funded schemes
779
(455)
324
767
(473)
294
Present value of unfunded obligations
–
(515)
(515)
–
(547)
(547)
Net asset/(liability) recognised in the balance sheet
779
(970)
(191)
767
(1,020)
(253)
Post-retirement scheme surpluses
1
779
11
790
767
15
782
Post-retirement scheme deficits
–
(981)
(981)
–
(1,035)
(1,035)
1 The surplus in the UK scheme is recognised as on an 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
Overseas schemes are located in the following countries:
2024
2023
Assets Obligations Net Assets Obligations Net
£m £m £m £m £m £m
Canada
193
(225)
(32)
199
(239)
(40)
Germany
56
(664)
(608)
31
(679)
(648)
US pension schemes
282
(297)
(15)
290
(301)
(11)
US healthcare schemes
–
(312)
(312)
–
(318)
(318)
Other
–
(3)
(3)
–
(3)
(3)
Net asset/(liability) recognised in the balance sheet
531
(1,501)
(970)
520
(1,540)
(1,020)
Defined benefit schemes
Assumptions
Significant actuarial assumptions for UK schemes at the balance sheet date were as follows:
2024
2023
Discount rate
5.50%
4.50%
Inflation assumption (RPI)
3.30%
3.30%
Inflation assumption (CPI)
2.90%
2.85%
Transfer take-up assumption (employed deferred/deferred)
20%/15%
35%/25%
Bridging Pension Option (BPO) assumption (employed deferred/deferred)
40%/25%
30%/30%
Life expectancy from age 65: current male pensioner
20.8 years
20�8 years
future male pensioner currently aged 45
21.5 years
21�5 years
current female pensioner
22.8 years
22�8 years
future female pensioner currently aged 45
24.1 years
24�1 years
Discount rates are determined by reference to the market yields on AA rated corporate bonds. The rate is determined by using the profile of
forecast benefit payments to derive a weighted average discount rate from the yield curve.
The inflation assumption is determined by the market-implied assumption based on the yields on long-term index-linked government securities.
The mortality assumptions adopted for the UK pension schemes are derived from the SAPS S3 ‘All’ actuarial tables, with future improvements in
line with the CMI 2023 core projections updated to reflect use of an ‘A’ parameter of 0.25% for future improvements and long-term improvements
of 1.25%. Where appropriate, these are adjusted to take account of the scheme’s actual experience.
The assumption for transfers and the BPO is based on actual experience and actuarial advice.
Other assumptions have been set on advice from the actuary, having regard to the latest trends in scheme experience and the assumptions used
in the most recent funding valuation. The rate of increase of pensions in payment is based on the rules of the scheme, combined with the inflation
assumption where the increase is capped.
178
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22 Post-retirement benefits continued
Assumptions for overseas schemes are less significant and are based on advice from local actuaries. The principal assumptions are:
2024
2023
Discount rate
4.50%
4.20%
Inflation assumption
2.10%
1.60%
Long-term healthcare cost trend rate
4.75%
4.75%
Male life expectancy from age 65: current pensioner
20.5 years
20�5 years
future pensioner currently aged 45
22.5 years
22�4 years
Changes in present value of defined benefit obligations
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
At 1 January
(4,537)
(1,540)
(6,077)
(4,621)
(1,507)
(6,128)
Exchange differences
–
38
38
–
54
54
Current service cost
–
(37)
(37)
(4)
(33)
(37)
Past-service cost
(14)
–
(14)
–
2
2
Finance cost
(200)
(61)
(261)
(218)
(66)
(284)
Contributions by employees
–
(13)
(13)
–
(9)
(9)
Benefits paid out
165
80
245
142
80
222
Actuarial gains/(losses)
628
32
660
164
(61)
103
Transfers
–
–
–
–
(2)
(2)
Transferred to held for sale
–
–
–
–
2
2
At 31 December
(3,958)
(1,501)
(5,459)
(4,537)
(1,540)
(6,077)
Funded schemes
(3,958)
(986)
(4,944)
(4,537)
(993)
(5,530)
Unfunded schemes
–
(515)
(515)
–
(547)
(547)
The defined benefit obligations are in respect of:
Active plan participants
1
(1,277)
(731)
(2,008)
(1,584)
(731)
(2,315)
Deferred plan participants
(1,064)
(98)
(1,162)
(1,287)
(100)
(1,387)
Pensioners
(1,617)
(672)
(2,289)
(1,666)
(709)
(2,375)
Weighted average duration of obligations (years)
14
12
13
16
12
15
1 Although the UK scheme closed to future accrual on 31 December 2020, members who became deferred as a result of the closure and remain employed by the Group retain some additional
benefits compared to other deferred members. The obligations for these members are shown as active plan participants
Changes in fair value of scheme assets
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
At 1 January
5,304
520
5,824
5,215
493
5,708
Exchange differences
–
(13)
(13)
–
(21)
(21)
Administrative expenses
(5)
(1)
(6)
(4)
(1)
(5)
Financing
235
24
259
247
25
272
Return on plan assets excluding financing
(633)
(5)
(638)
(12)
26
14
Contributions by employer
1
73
74
–
69
69
Contributions by employees
–
13
13
–
9
9
Benefits paid out
(165)
(80)
(245)
(142)
(80)
(222)
At 31 December
4,737
531
5,268
5,304
520
5,824
Total return on scheme assets
(398)
19
(379)
235
51
286
179
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
22 Post-retirement benefits continued
Fair value of scheme assets at 31 December
2024
2023
UK Overseas UK Overseas
schemes schemes Total schemes schemes Total
£m £m £m £m £m £m
Sovereign debt
3,335
140
3,475
3,259
118
3,377
Corporate debt instruments
1,860
248
2,108
1,996
270
2,266
Interest rate swaps
197
–
197
170
–
170
Inflation swaps
92
–
92
86
–
86
Cash and similar instruments
1
(1,176)
–
(1,176)
(892)
–
(892)
Liability driven investment (LDI) portfolios
2
4,308
388
4,696
4,619
388
5,007
Listed equities
–
54
54
–
69
69
Unlisted equities
25
–
25
32
–
32
Synthetic equities
3
–
–
–
20
–
20
Corporate debt instruments
379
–
379
630
–
630
Cash
25
11
36
–
10
10
Other
–
78
78
3
53
56
At 31 December
4,737
531
5,268
5,304
520
5,824
1 UK cash and similar instruments include repurchase agreements on UK Government bonds amounting to £(1,203)m (2023: £(993)m). The latest maturity date for these short-term
borrowings is June 2025
2 A portfolio of gilt and swap contracts, backed by investment-grade credit instruments and diversified liquidity funds, that is designed to hedge the majority of the interest rate and inflation
risks associated with the schemes’ obligations
3 Portfolios of swap contracts designed to provide investment returns in line with global equity markets. The maximum exposure (notional value and accrued returns) on the portfolios was
£nil (2023: £379m)
The investment strategy for the UK scheme is controlled by the Trustee in consultation with the Group. The scheme assets do not include any of
the Group’s own financial instruments, nor any property occupied by, or other assets used by, the Group (2023: none).
Future contributions
The Group expects to contribute approximately £76m to its overseas defined benefit schemes in 2025 (2024: £73m).
In the UK, any cash funding of RRUKPF is based on a statutory triennial funding valuation process. The Group and the Trustee negotiate and
agree the actuarial assumptions used to value the liabilities (Technical Provisions); assumptions which may differ from those used for accounting
are set out above. The assumptions used to value Technical Provisions must be prudent rather than a best estimate of the liability. Most notably,
the Technical Provisions discount rate is currently based upon UK Government bond yields plus a margin (0.5% at the 31 March 2023 valuation)
rather than being based on yields of AA corporate bonds. Once each valuation is signed, a Schedule of Contributions (SoC) must be agreed
which sets out the cash contributions to be paid. The most recent valuation, as at 31 March 2023, agreed by the Trustee in October 2023, showed
that the RRUKPF was estimated to be 115% funded on the Technical Provisions basis (estimated to be 119% at 31 December 2024). All cash due
has been paid in full and the current SoC does not currently require any cash contributions to be made by the Group.
180
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
22 Post-retirement benefits continued
Sensitivities
The calculations of the defined benefit obligations are sensitive to the assumptions set out above. The following table summarises how the
estimated impact of a change in a significant assumption would affect the UK defined benefit obligation at 31 December 2024, while holding all
other assumptions constant. This sensitivity analysis may not be representative of the actual change in the defined benefit obligation as it is
unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.
For the most significant funded schemes, the investment strategies hedge the risks from interest rates and inflation measured on a proxy
solvency basis.
For the UK scheme, the interest rate and inflation hedging is currently based on UK Government bond yields without any adjustment for any
credit spread. The sensitivity analysis set out below has been determined based on a method that estimates the impact on the defined
benefit obligation as a result of reasonable changes in key assumptions occurring at the end of the reporting period.
2024 2023
£m £m
Reduction in the discount rate of 0.25%
1
Obligation
(145)
(185)
Plan assets (LDI portfolio)
179
204
Increase in inflation of 0.25%
1
Obligation
(55)
(75)
Plan assets (LDI portfolio)
73
77
Increase of 1% in transfer value assumption
Obligations
(25)
(30)
One year increase in life expectancy
Obligations
(125)
(155)
1 The differences between the sensitivities on obligations and plan assets arise largely due to differences in the methods used to value the obligations for accounting purposes and the
adopted proxy solvency basis
23 Share capital
Non-equity
Equity
Special Nominal Ordinary shares Nominal
Share value of 20p each value
of £1 £m Millions £m
Issued and fully paid
At 1 January 2023
1
–
8,368
1,674
Shares issued to employee share trust
–
–
49
10
At 31 December 2023
1
–
8,417
1,684
Shares issued to employee share trust
–
–
88
17
At 31 December 2024
1
–
8,505
1,701
The rights attaching to each class of share are set out on pages 220 to 221.
In accordance with IAS 32 Financial Instruments: Presentation, the Company’s non-cumulative redeemable preference shares (C Shares) are
classified as financial liabilities. Accordingly, movements in C Shares are included in note 20. In addition, rights to C share holders are included
on page 220�
181
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
24 Share-based payments
Effect of share-based payment transactions on the Group’s results and financial position
2024 2023
£m £m
Total expense recognised for equity-settled share-based payments transactions
95
49
Total cost recognised for cash-settled share-based payments transactions
41
17
Share-based payments recognised in the consolidated income statement
136
66
Liability for cash-settled share-based payment transactions
59
18
A description of the share-based payment plans is included in the Directors’ Remuneration Report on pages 86 to 110.
Movements in the Group’s share-based payment plans during the year
ShareSave
Free Shares
LTIP
Incentive Plan
Weighted average
Number exercise price Number Number Number
Millions Pence Millions Millions Millions
Outstanding at 1 January 2023
65�6
127
–
93�0
12�2
Granted
0�1
115
–
44.7
7.0
Forfeited
(12.3)
203
–
(29.1)
(1.9)
Exercised
–
–
–
(7.6)
(0.1)
Outstanding at 31 December 2023
53�4
107
–
101�0
17.2
Granted
–
–
6.2
22.8
5.0
Forfeited
(2.3)
110
(0.2)
(5.7)
(0.5)
Exercised
(0.5)
104
–
(25.4)
(5.6)
Outstanding at 31 December 2024
50.6
107
6.0
92.7
16.1
Exercisable at 31 December 2024
0.1
–
–
–
–
Exercisable at 31 December 2023
–
–
–
–
–
The weighted average share price at the date share options were exercised was 420p (2023: 159p). The closing price at 31 December 2024 was
569p (2023: 300p).
The weighted average remaining contractual life for the share options as at 31 December 2024 was one month (2023: one year) as the majority
of shares are due to vest in early 2025 and the range of exercise prices for the share options as at 31 December 2024 was 97p to 232p.
Fair values of share-based payment plans
The weighted average fair value per share of equity-settled share-based payment plans granted during the year, estimated at the date of grant,
are as follows:
2024
2023
Free Shares
494p
–
Long-term incentive plan
361p
216p
Incentive Plan
378p
157p
Long-term incentive plan
The fair value of shares awarded is calculated using a pricing model that takes account of the non-entitlement to dividends (or equivalent) during
the vesting period and the market-based performance condition based on expectations about volatility and the correlation of share price returns
in the group of FTSE 100 and S&P Global Industrials Index companies and which incorporates into the valuation the interdependency between
share price performance and TSR vesting where market-based conditions are applicable. This adjustment decreases the fair value of the award
relative to the share price at the date of grant.
ShareSave
The fair value of the options granted is calculated using a pricing model that assumes that participants will exercise their options at the beginning
of the six-month window if the share price is greater than the exercise price. Otherwise, it assumes that options are held until the expiration of
their contractual term. This results in an expected life of the mid-point between the start of the exercise window and the date of expiration.
Incentive Plan
The fair value of shares awarded is calculated as the share price on the date of the award, on the basis that awards are entitled to receive dividends
(or equivalents).
Free Shares
During the year, every Rolls-Royce employee was gifted 150 shares. The awards were granted under two plans; the ‘Rolls-Royce Share Purchase
Plan’ for UK employees and the ‘Rolls-Royce Global Employee Share Purchase Plan’ for non-UK employees; both being equity-settled schemes.
The fair value of shares awarded under the free shares scheme is calculated as the share price on the date of the award, on the basis that awards
are entitled to receive dividends (or equivalents).
182
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
25 Contingent liabilities
In January 2017, after full cooperation, the Company concluded deferred prosecution agreements (DPA) with the Serious Fraud Office and the
US Department of Justice and a leniency agreement with the Ministério Público Federal, the Brazilian federal prosecutor. The terms of both DPAs
have now expired. The Company has also met all its obligations under a two-year leniency agreement with Brazil’s Comptroller General (CGU),
signed in October 2021, relating to the same historical matters. In April 2024, the CGU confirmed that the Company would no longer be subject
to compliance monitorship. 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 Group or individuals. In
addition, the Group could still be affected by actions from other parties, including customers, customers’ financiers and the Company’s current
and former investors, including certain potential claims in respect of the Group’s historical ethics and compliance disclosures which have been
notified to the Group. 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.
The Group has, in the normal course of business, entered into arrangements in respect of export finance, performance bonds, grant funding,
countertrade obligations and minor miscellaneous items, which could result in potential outflows if the requirements related to those
arrangements are not met. Various Group undertakings are party to legal actions and claims (including with tax authorities) which arise in the
ordinary course of business, some of which are for substantial amounts.
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, they relate to a number of
customers, a broad product portfolio and are generally secured on the asset subject to the financing. These include commitments of $405m
(2023: $857m) (on a discounted basis) to provide facilities to enable customers to purchase aircraft (of which approximately $100m could be
called during 2025). 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, 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.
Customer financing provisions would be made to cover guarantees provided for asset value and/or financing were it probable that a payment
would be made. These would be measured on a discounted basis at the Group’s borrowing rate to reflect the time span over which these
exposures could arise. The values of aircraft providing security are based on advice from a specialist aircraft appraiser. There were no provisions
for customer financing provisions at 31 December 2024 or 31 December 2023.
The Group has responded appropriately to the Russia-Ukraine conflict to comply with international sanctions and export control regime, and to
continue to implement the business decision to exit from Russia. The Group could be subject to action by impacted customers, suppliers and
other contract parties.
While the outcome of the above 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 significant loss to the Group.
26 Related party transactions
2024 2023
£m £m
Sales of goods and services
1
7,702
6,700
Purchases of goods and services
1
(8,725)
(7,471)
Lease payments to joint ventures and associates
(241)
(244)
Guarantees of joint arrangements’ and associates’ borrowings
–
2
Guarantees of non-wholly owned subsidiaries’ borrowings
4
3
Dividends received from joint ventures and associates
77
54
Other income received from joint ventures and associates
7
6
1 Sales of goods and services to related parties and purchases of goods and services from related parties, including joint ventures and associates, are included at the average exchange
rate, consistent with the statutory income statement
Included in sales of goods and services to related parties are sales of spare engines amounting to £48m (2023: £48m). Profit recognised in the
year on such sales amounted to £62m (2023: £88m), including profit on current year sales and recognition of profit deferred on similar sales in
previous years. Cash receipts relating to the sale of spare engines amounted to £48m (2023: £73m).
Included in cost of sales in the income statement are interest costs of £9m (2023: £34m) incurred during the year which have been settled by the
Group on behalf of joint ventures.
The aggregated balances with joint ventures are shown in notes 14 and 19. Transactions with Group pension schemes are shown in note 22.
183
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
26 Related party transactions continued
Key management personnel are deemed to be the Directors (pages 68 to 69) and the members of the Executive Team (described on page 78).
Remuneration for key management personnel is shown below:
2024 2023
£m £m
Salaries and benefits
29
26
Included in the above:
Post-retirement schemes
1
–
Share-based payments
13
15
During the year, no Directors (2023: one) received termination benefits. For further detail, see the Remuneration Report.
More detailed information regarding the Directors’ remuneration, shareholdings, pension entitlements, share options and other long-term
incentive plan is shown in the Remuneration Report on pages 86 to 110. The charge for share-based payments above is based on when the award
is charged to the income statement in accordance with IFRS 2 Share-Based Payments, rather than when the shares vest, which is the basis used
in the Remuneration Report.
27 Business disposals and businesses held for sale
Disposals
At 31 December 2023, the Group had classified the assets and liabilities related to part of the Power Systems’ lower power range engines business
as held for sale as, in line with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the business was available for sale in its
current condition and the sale was considered highly probable. A disposal agreement was signed with Deutz AG on 28 March 2024 and the
disposal completed on 31 July 2024 for cash consideration of £62m. The carrying value of the net assets derecognised was £42m, with a £16m
profit on disposal after costs.
2024
£m
Proceeds
Net cash consideration at prevailing exchange rate and at effective hedged rate
62
Cash flow on disposal of business per cash flow statement
62
Intangible assets
49
Inventory
4
Provisions for liabilities and charges
(6)
Contract liabilities
(4)
Post-retirement scheme deficits
(1)
Less: Net assets disposed
42
Profit on disposal before disposal costs and accounting adjustments
20
Disposal costs
(4)
Profit on disposal of business before and after taxation
16
Profit on disposal of businesses per income statement
16
184
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
27 Business disposals and businesses held for sale continued
Businesses held for sale
At 31 December 2024, the Group had classified the assets and liabilities related to its naval propulsors & handling business as held for sale as, in
line with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, the business was available for sale in its current condition and
the sale was considered highly probable. On 18 September 2024, the Group and Fairbanks Morse Defense signed a sale and disposal agreement,
with completion anticipated during 2025.
At 31 December 2023, assets and liabilities related to part of Power Systems’ lower power range engines business were held for sale, as set out
above this sale completed on 31 July 2024.
Assets held for sale are measured at the lower of their carrying value or fair value less costs to sell. Assets and liabilities held for sale are
summarised in the table below.
2024 2023
£m £m
Intangible assets
13
51
Property, plant and equipment
51
–
Right-of-use assets
1
–
Inventory
24
11
Trade receivables and other assets
64
47
Assets held for sale
153
109
Trade payables and other liabilities
(96)
(41)
Contract liabilities
(4)
Provisions for liabilities and charges
(3)
(8)
Borrowings and lease liabilities
(1)
–
Post-retirement scheme deficits
(2)
Liabilities associated with assets held for sale
(100)
(55)
Net assets held for sale
53
54
185
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
28 Derivation of summary funds flow statement
2024
2023
Impact of
other
Impact of non-
Impact of acquisition underlying
Cash flow hedge book accounting items Funds flow Funds flow
£m £m £m £m £m £m
Operating profit/(loss)
2,906
(191)
45
(296)
2,464
1,590
Loss on disposal of property, plant and equipment
1
32
–
–
–
32
18
Loss on disposal of intangible assets
1
6
–
–
–
6
–
Joint venture trading
1
(95)
–
–
–
(95)
(119)
Depreciation, amortisation and impairment
543
–
(45)
355
853
978
Movement in provisions
(56)
(56)
–
(55)
(167)
(258)
(Increase)/decrease in inventories
2
(323)
–
–
–
(323)
(200)
Movement in prepayments to RRSAs for LTSA parts
(348)
129
–
–
(219)
(252)
Movement in cost to obtain contracts
(19)
1
–
–
(18)
(40)
Movement in trade receivables/payables and other assets/liabilities
2
524
(341)
–
(17)
166
(2,251)
Revaluation of trading assets
2
24
(38)
–
–
(14)
196
Realised derivatives in financing
652
–
–
–
652
853
Movement in Civil LTSA balance
1,193
(283)
–
–
910
1,331
Movement in contract assets/liabilities (excluding Civil LTSA)
2
(441)
108
–
132
(201)
1,046
Settlement of excess derivatives
(146)
–
–
–
(146)
(389)
Interest received
269
–
–
–
269
159
Contributions to defined benefit schemes in excess of underlying
operating profit charge
1
(18)
–
–
(13)
(31)
(26)
Cash flows on other financial assets and liabilities held for operating
purposes
(676)
652
–
–
(24)
8
Share-based payments
1
136
–
–
–
136
66
Other
1
–
(5)
–
–
(5)
(7)
Income tax
(381)
–
–
–
(381)
(172)
Cash from operating activities
3,782
(24)
–
106
3,864
2,531
Capital element of lease payments
(299)
24
–
–
(275)
(270)
Capital expenditure
(876)
–
–
–
(876)
(695)
Investments
16
–
–
–
16
69
Interest paid
(298)
–
–
–
(298)
(333)
Other (M&A, restructuring and exceptional transformation costs)
100
–
–
(106)
(6)
(17)
Free cash flow
2,425
–
–
–
2,425
1,285
1 Included in other operating cash flows in the summarised free cash flow on page 23
2 Included in working capital (excluding Civil LTSA balance) in the summarised free cash flow on page 23
The comparative information to 31 December 2024 has been presented in a different format to align to the current year presentation. In some
instances, the groupings of items may have changed.
Free cash flow is a measure of the financial performance of the businesses’ cash flows which is consistent with the way in which performance is
communicated to the Board. Free cash flow is defined as cash flows from operating activities including capital expenditure and movements in
investments, capital elements of lease payments, interest paid, amounts paid relating to the settlement of excess derivatives and excluding
amounts spent or received on activity related to business acquisitions or disposals and other material exceptional or one-off cash flows. The
Board considers that free cash flow reflects cash generated from the Group’s underlying trading.
Cash flow from operating activities is determined to be the nearest statutory measure to free cash flow. The reconciliation between free cash
flow and cash flow from operating activities can be found on page 218.
186
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Company balance sheet
At 31 December 2024
Notes
2024
£m
2023
£m
ASSETS
Investments – subsidiary undertakings 2 14,905 14,810
Non-current Assets 14,905 14,810
Cash and cash equivalents 1 –
Current Assets 1 –
NET ASSETS
6 14,906 14,810
LIABILITIES
Trade payables and other liabilities
3 (337) (336)
Other financial liabilities
4 (22) (23)
Current liabilities (359) (359)
NET ASSETS
6 14,547 14,451
EQUITY
Called-up share capital
5 1,701 1,684
Share premium 1,012 1,012
Merger reserve 6,962 6,962
Capital redemption reserve 2,750 2,749
Other reserve 493 397
Retained earnings 1,629 1,647
TOTAL EQUITY 14,547 14,451
The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company income
statement. The result for the Company for the year was nil (2023: nil).
The Financial Statements on pages 187 to 191 were approved by the Board on 27 February 2025 and signed on its behalf by:
Tufan Erginbilgic Helen McCabe
Chief Executive Chief Financial Officer
Company’s registered number: 7524813
187
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTSFINANCIAL STATEMENTS
COMPANY FINANCIAL STATEMENTS
Company statement of changes in equity
For the year ended 31 December 2024
Attributable to ordinary shareholders
Share
capital
£m
Share
premium
£m
Merger
reserve
1
£m
Capital
redemption
reserve
£m
Other
reserve
2
£m
Retained
earnings
£m
3, 4
Total
equity
£m
At 1 January 2023 1,674 1,012 6,962 2,748 349 1,658 14,403
Arising on issues of ordinary shares 10 – – – – (10) –
Redemption of C Shares – – – 1 – (1) –
Share-based payments – direct to
equity – – – – 48 – 48
At 1 January 2024 1,684 1,012 6,962 2,749 397 1,647 14,451
Arising on issues of ordinary shares 17 – – – – (17) –
Redemption of C Shares – – – 1 – (1) –
Share-based payments – direct to
equity – – – – 96 – 96
At 31 December 2024 1,701 1,012 6,962 2,750 493 1,629 14,547
1 The Company’s merger reserve was created as a result of a High Court approved scheme of arrangement in 2011, when the Company became the holding company for the
Rolls-Royce Group
2 Other reserve represents the value of the share-based payments in respect of employees of subsidiary undertakings for which payment has not been received
3 The reserves, which are distributable to the Company’s equity shareholders, are determined with reference to the Companies Act 2006 and requires judgement in determining the amount
available for distribution. Further guidance is given in the Institute of Chartered Accountants in England and Wales technical release 02/17BL in relation to what profits can be treated a
distributable. At 31 December 2024, all the Company’s retained earnings are distributable, however, the available amount may be different at the point any future distributions are made
4 At 31 December 2024, 106,066,831 ordinary shares with a net book value of £26m (31 December 2023: 52,912,406 ordinary shares with a net book value of £22m) were held for the purpose
of share-based payment plans and included in accumulated losses. During the year:
– 35,117,065 ordinary shares with a net book value of £14m (31 December 2023: 7,875,240 ordinary shares with a net book value of £15m) vested in share-based payment plans;
– the Company issued 88,200,000 (31 December 2023: 49,100,000) new ordinary shares to the Group’s share trust for its employee share-based payment plans with a net book value of
£18m (31 December 2023: £10m); and
– the Company acquired none (31 December 2023: none) of its ordinary shares via reinvestment of dividends received on its own shares and purchased 71,490 (31 December 2023: 284,850)
of its ordinary shares through purchases on the London Stock Exchange
188
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
COMPANY FINANCIAL STATEMENTS
1 Accounting policies
Basis of accounting
Rolls-Royce Holdings plc (the Company) is a public company limited by shares incorporated and domiciled in England in the United Kingdom.
These Financial Statements have been prepared in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework on the
historical cost basis.
These financial statements have been prepared on a going concern basis. Further details are given in the Going Concern Statement on page 61.
After due consideration, the Directors consider that the Group has sufficient liquidity to continue in operational existence over the going concern
period to 30 June 2026 and are therefore satisfied that it is appropriate to adopt the going concern basis of accounting in preparing the
Company Financial Statements�
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International
Financial Reporting Standards (IFRS) as adopted by the UK (UK-adopted international accounting standards), but makes amendments where
necessary in order to comply with the Companies Act 2006 and to take advantage of Financial Reporting Standard 101 Reduced Disclosure
Framework:
— a cash flow statement and related notes;
— comparative period reconciliation for investments and financial liabilities;
— comparative period reconciliation for share capital;
— the effects of new, but not yet effective accounting standards; and
—
the requirements of IAS 24 Related Party Disclosures and has, therefore, not disclosed transactions between the Company and its
wholly-owned subsidiaries.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Financial
Statements�
There were no changes to accounting standards that had a material impact on these Financial Statements. The Company’s Financial Statements
are presented in sterling, which is the Company’s functional currency.
As permitted by section 408 of the Companies Act 2006, a separate income statement for the Company has not been included in these Financial
Statements. As permitted by the audit fee disclosure regulations, disclosure of non-audit fees information is not included in respect of the
Company�
Key areas of judgement and sources of estimation uncertainty
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires the Directors to exercise their
judgement in the process of applying the accounting policies. The Directors have not identified any critical estimates or judgements where there
is a significant risk of material change in the next 12 months at 31 December 2024.
Material accounting policies
Investments in subsidiary undertakings
Investments included in assets are investments in subsidiary companies, and these are held at historical cost less impairments which is considered
annually by the Directors.
Trade payables
Trade payables are recognised initially at the transaction price and subsequently measured at amortised cost using the effective interest method.
Financial instruments
In accordance with IAS 32 Financial Instruments: Presentation, the Company’s C Shares are classified as financial liabilities and held at amortised
cost from the date of issue untilredeemed.
Equity
Ordinary shares are classified as equity. Equity instruments are measured at the fair value of the cash or other resources received or receivable,
net of the direct costs of issuing the equity instruments. The cost of issuing ordinary shares are charged to the share premium account.
Share-based payments
As described in the Remuneration Report on pages 86 to 110, the Company grants awards of its own shares to employees of its
subsidiary undertakings (see note 24 of the Consolidated Financial Statements). The costs of share-based payments in respect of these awards
are accounted for, by the Company, as an additional investment in its subsidiary undertakings. The costs are determined in accordance with
IFRS2 Share-based Payment. Any payments made by the subsidiary undertakings in respect of these arrangements are treated as a return of
thisinvestment.
189
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTSFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
1 Accounting policies continued
Insurance contracts
The Company enters into: financial guarantees where the Company guarantees payment in case of its subsidiary defaulting on a debt; and
performance guarantees where the Company guarantees certain subsidiaries performance to a customer. The Company has reviewed and
concluded that its arrangements meet the accounting definition of an insurance contract under IFRS 17 Insurance Contracts� The Company has
elected to apply IFRS17 Insurance Contracts (rather than IFRS 9 Financial Instruments) to all currently issued financial guarantee contracts.
At 31 December 2024, financial guarantees of borrowings amounted to £6,094 (2023: £7,601m) of which the total amount of debt drawn is £3,594m
(2023: £4,101m). Under IFRS 17 Insurance Contracts, the Company must recognise any obligation at the inception of the contract for the expected
fulfilment cash flows under the contract on a best estimate basis (liability for remaining coverage). The Company has assessed the probability of
losses on its financial and performance guarantees and has determined that the probability is remote after consideration of both historical and
forward-looking triggers and as such the estimated liability is immaterial. As the estimated liability is immaterial at 31 December 2024, no liability
has been recognised in the Company Financial Statements.
2 Investments – subsidiary undertakings
£m
Cost:
At 1 January 2024 14,810
Cost of share-based payments in respect of employees of subsidiary undertakings less receipts from subsidiaries in respect of
those payments 95
At 31 December 2024 14,905
Details of the Company’s subsidiary undertakings and joint venture and associates undertakings are listed on pages 192 to 197.
The carrying value of the Company’s investments in subsidiary undertakings has been reviewed for impairment in accordance with IAS 36
Impairment of Assets. No indicators of impairment were identified at 31 December 2024.
3 Trade payables and other liabilities
2024
£m
2023
£m
Amounts owed to – subsidiary undertakings 337 336
Amounts owed to subsidiary undertakings are interest-free and repayable on demand.
4 Financial liabilities
C Shares
Movements during the year were as follows:
C Shares
of 0.1p
millions
Nominal
value
£m
At 1 January 2024 23,152 23
Redeemed (647) (1)
At 31 December 2024 22,505 22
The rights attaching to C Shares are set out on page 220.
190
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
NOTES TO THE COMPANY FINANCIAL STATEMENTS
5 Share capital
Non-equity Equity
Special
Share
of £1
Preference
shares of
£1 each
Nominal
value
£m
Ordinary
shares of
20p each
Millions
Nominal
value
£m
Issued and fully paid
At 1 January 2024 1 – – 8,417 1,684
Shares issued to employee share trust – – – 88 17
At 31 December 2024 1 – – 8,505 1,701
The rights attaching to each class of share are set out on pages 220 to 221.
In accordance with IAS 32 Financial Instruments: Presentation, the Company’s non-cumulative redeemable preference shares (C Shares) are
classified as financial liabilities. Accordingly, movements in C Shares are included in note 4.
6 Reconciliation of net assets between Rolls-Royce Holdings plc Group and Company
As at 31 December 2024, Rolls-Royce Holdings plc consolidated group had net liabilities of £881m (2023: £3.6bn) compared to £14.5bn (2023:
£14.5bn) of net assets of the Company. The Company is a holding company and does not trade in its own right. The Company was incorporated
in 2011 and became the Rolls-Royce holding company through a Scheme of Arrangement. On becoming the Rolls-Royce holding company, the
value of the Company’s investment in subsidiaries was based on the market capitalisation of the Rolls-Royce group at that time. There was an
increase in the investment as a result of a capital injection to Rolls-Royce Group Limited during 2020. The Group’s consolidated financial
statements are prepared on a historical cost basis except where UK adopted international accounting standards requires a valuation basis to be
applied (see page 189 for further details). As different principles are applied in preparing the Company and consolidated group balance sheets
there is a difference in the financial position reported. Examples of such differences include the following items that are in the Consolidated
balance sheet but not reflected in the Company’s balance sheet: net contract liabilities of £13.9bn (2023: £13.3bn) as a result of IFRS 15 Revenue
from Contracts with Customers; and net financial liabilities of £1.9bn (2023: £2.0bn) arising from the recognition at fair value of foreign exchange
derivatives held to manage exposure on the Group’s future trading.
7 Contingent liabilities
For further details on action related to historical matters that could have an impact on the Company, see page 183.
8 Other information
Employees
The Company had no employees in 2024 (2023: none).
Share-based payments
Shares in the Company have been granted to employees of the Group as part of share-based payment plans, and are charged in the employing
company�
Emoluments of Directors
The remuneration of the Directors of the Company is shown below, further information is in the Remuneration Report on pages 86 to 110.
The total amount of remuneration paid to Directors for the year ended 31 December 2024 was £7,670,542 (2023: £10,130,000). £4,078,266 of this
was attributed to the highest paid Director (2023: £5,960,000). A cash allowance in lieu of company contributions to a pension scheme was also
paid to two Directors (2023: three), which totalled £245,888 (2023: £244,000). No Directors exercised share options during the year (2023: none)
nor received vested shares under the long-term incentive plan (2023: none). No Directors received payments for loss of office (2023: one
Director totalling £483,000).
No Director accrued any retirement benefits in the year (2023: none).
191
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTSFINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
% of class
Company name
Address
Class of shares
 held
Aerospace Transmission Technologies GmbH
1
Adelheidstrasse 40, D-88046, Friedrichshafen, Germany
Capital Stock
50
Amalgamated Power Engineering Limited
2
London
3
Deferred 100
Ordinary 100
Bristol Siddeley Engines Limited
2
London
3
Ordinary
100
Brown Brothers & Company, Limited
4
Taxiway, Hillend Industrial Estate, Dalgety Bay, Dunfermline, Fife
Ordinary
100
KY11 9JT, Scotland
C A Parsons & Company Limited
4
London
3
Ordinary
100
Derby Specialist Fabrications Limited
2
London
3
Ordinary
100
Europea Microfusioni Aerospaziali S.p.A.
Zona Industriale AS1, 83040 Morra de Sanctis, Avellino, Italy
Ordinary
100
Heaton Power Limited
2
London
3
Ordinary
100
John Thompson Cochran Limited
2
Taxiway, Hillend Industrial Estate, Dalgety Bay, Dunfermline, Fife 6% Cumulative 100
KY11 9JT, Scotland Preference
Ordinary 100
Karl Maybach-Hilfe GmbH i.l.
9
Maybachplatz 1, 88045, Friedrichshafen, Germany
Capital Stock
100
Kinolt Immo SA
Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium
Ordinary
100
Kinolt Immobilien SA
Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium
Ordinary
100
Kinolt Sistemas de UPS SpA
Bucarest No 17 Oficina, No 33, Previdencia, Santiago, Chile
Ordinary
100
Kinolt UK Limited
2
London
3
Ordinary
100
LLC Rolls-Royce Solutions Rus
2
Shabolovka Street 2, 119049, Moscow, Russian Federation
Ordinary
100
MTU Cooltech Power Systems Co., Limited
1
Building No 2, No 1633 Tianchen Road, Quingpu District, Shanghai,
Equity
50
China
MTU India Private Limited
6
6th Floor, RMZ Galleria, S/Y No. 144 Bengaluru, Bangalore,
Ordinary
100
Kamataka
560,064, India
MTU Polska Sp. z o.o.
ul. Hoża 86, lokal 410, 00-682 Warsaw, Poland
Ordinary
100
NEI International Combustion Limited
2
London
3
Ordinary
100
NEI Mining Equipment Limited
2
London
3
Ordinary
100
NEI Nuclear Systems Limited
2
London
3
Ordinary
100
NEI Parsons Limited
2
London
3
Ordinary
100
NEI Peebles Limited
2
London
3
Ordinary
100
NEI Power Projects Limited
2
London
3
Ordinary
100
Nightingale Insurance Limited
PO Box 33, Dorey Court, Admiral Park, St Peter Port GY1 4AT,
Ordinary
100
Guernsey
No-Break Power Limited
2
London
3
Ordinary
100
Powerfield Limited
2
Derby
7
Ordinary
100
PT Rolls-Royce
Secure Building Blok B, Jl. Raya Protokol Halim, Perdanakusuma,
Ordinary
100
Jakarta, 13610,
Indonesia
PT Rolls Royce Solutions Indonesia
Secure Building Blok B, Jl. Raya Protokol Halim, Perdanakusuma,
Ordinary
100
Jakarta, 13610,
Indonesia
Rolls-Royce (Ireland) Unlimited Company
2
Ulster International Finance, 1st Floor IFSC House, IFSC Dublin,
Ordinary
100
Dublin, County Dublin, DO1R 2P9, Ireland
Rolls-Royce (Thailand) Limited
989
Floor 12A, Unit B1, B2, Siam Piwat Tower, Rama 1, Pathumwan,
Ordinary
100
Bangkok,
10
330, Thailand
Rolls-Royce Aero Engine Services Limited
2
London
3
Ordinary
100
Rolls-Royce Australia Pty Limited
Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia
Ordinary
100
Rolls-Royce Australia Services Pty Limited
Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia
Ordinary
100
Rolls-Royce Brasil Limitada
Rua Jose Versolato, No. 111, Torre B, Sala 2502, Centro, São
Quotas
100
Bernando do Campo, São Paulo, CEP 09750-730, Brazil
Rolls-Royce Canada Limited
9500
Côte de Liesse, Lachine, Québec H8T 1A2, Canada
Common
100
Stock
Rolls-Royce Chile SpA
Rosario Norte #407 Depto. #1601 Comuna Las Condes Ciudad
Ordinary
100
Santiago, Chile
Rolls-Royce China Holding Limited
305
Indigo Building 1, 20 Jiuxianqiao Road, Beijing, 100016, China
Ordinary
100
Rolls-Royce Commercial Aero Engines
London
3
Ordinary
100
Limited
2
Rolls-Royce Controls and Data Services
London
3
Ordinary
100
Limited
2
Rolls-Royce Controls and Data Services (NZ) Deloitte Centre, Level 20, 1 Queen Street, Auckland, 10103,
Ordinary
100
Limited New Zealand
Rolls-Royce Controls and Data Services (UK)
Derby
7
Ordinary
100
Limited
4
As at 31 December 2024, the companies listed below and on the following pages are indirectly held by Rolls-Royce Holdings plc, except
Rolls-Royce Group Limited, which is 100% directly owned by Rolls-Royce Holdings plc and Rolls-Royce plc which Rolls-Royce Holdings plc
directly owns 3.54%. The financial year end of each company is 31 December unless otherwise indicated.
192
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Subsidiaries
% of class
Company name
Address
Class of shares
 held
Rolls-Royce Corporation
Wilmington
8
Common 100
Stock
Rolls-Royce Crosspointe LLC
Wilmington
8
Partnership 100
(no equity
held)
Rolls-Royce Defense Products and Solutions
Wilmington
8
Common 100
Inc� Stock
Rolls-Royce Defense Services Inc.
Wilmington
8
Common 100
Stock
Rolls-Royce Deutschland Ltd & Co KG
Eschenweg
11,
15827
Blankenfelde-Mahlow OT Dahlewitz, Germany
Partnership
100
(no equity
held)
Rolls-Royce Electrical Norway AS
Jarleveien 8A, 7041, Trondheim, Norway
Ordinary
100
Rolls-Royce Energy Angola, Limitada
2
Casa no. 174, Largo Leite Duarte, Bairro Miramar, Luanda,
Quota
100
Municipality of Ingombota, Angola
Rolls-Royce Energy Systems Inc.
2
Wilmington
8
Common 100
Stock
Rolls-Royce Engine Services Holdings Co.
Wilmington
8
Common 100
Stock
Rolls-Royce Engine Services Limitada Inc.
9
Bldg. 06 Berthaphil Compound, Jose Abad Santos Avenue,
Capital Stock
100
Rolls-Royce Erste Beteiligungs GmbH
Clark Special Economic Zone, Clark, Pampanga, Philippines
Eschenweg 11,
15827
Blankenfelde-Mahlow OT Dahlewitz, Germany
Capital Stock
100
Rolls-Royce Finance Company Limited
2
London
3
Deferred 100
Ordinary 100
Rolls-Royce Finance Holdings Co.
Wilmington
8
Common 100
Stock
Rolls-Royce Fuel Cell Systems Limited
4
Derby
7
Ordinary
100
Rolls-Royce General Partner (Ireland)
29 Earlsfort Terrace, Dublin 2, Dublin D02 AY28, Ireland
Ordinary
100
Limited
Rolls-Royce General Partner Limited
2
London
3
Ordinary
100
Rolls-Royce Group Limited
13
London
3
Ordinary 100
Ordinary A
Rolls-Royce High Temperature Composites Corporation Service Company, 2710 Gateway Oaks Drive,
Ordinary
100
Inc� Suite 150N, Sacramento, California 95833, United States
Rolls-Royce Holdings Canada Inc.
9500
Côte de Liesse, Lachine, Québec H8T 1A2, Canada
Common C
100
Rolls-Royce Hungary Kft
Gizella U. 51–57, 1143 Budapest, Hungary
Cash shares
100
Rolls-Royce India Limited
2, 6, 10
Derby
7
Ordinary
100
Rolls-Royce India Private Limited
6
Birla Tower West, 2nd Floor 25, Barakhamba Road, New Delhi,
Equity
100
11
0
001, India
Rolls-Royce Industrial & Marine Power
London
3
Ordinary
100
Limited
4
Rolls-Royce Industrial Power (India)
Derby
7
Ordinary
100
Limited
2, 6, 10
Rolls-Royce Industrial Power Engineering
Derby
7
Ordinary
100
(Overseas Projects) Limited
4
Rolls-Royce Industries Limited
4
Derby
7
Ordinary
100
Rolls-Royce International Limited
Derby
7
Ordinary
100
Rolls-Royce Japan Co., Limited
31st Floor, Kasumigaseki Building, 3-2-5 Kasumigaseki,
Ordinary
100
Chiyoda-Ku, Tokyo, 100-6031, Japan
Rolls-Royce Leasing Limited
Derby
7
Ordinary
100
Rolls-Royce Malaysia Sdn. Bhd.
Unit A-3-6 TTDI Plaza, Jalan Wan Kadir 3, Taman Tun Dr Ismail,
Ordinary
100
6000
Kuala Lumpur, Malaysia
Rolls-Royce Marine North America Inc.
Wilmington
8
Common 100
Stock
Rolls-Royce Military Aero Engines
London
3
Ordinary
100
Limited
2, 6, 10
Rolls-Royce New Zealand Limited
Deloitte Centre, Level 20, 1 Queen Street, Auckland, 10103,
New Zealand
Ordinary
100
Rolls-Royce North America (USA)
Wilmington
8
Common 100
Holdings Co. Stock
Rolls-Royce North America Holdings Inc.
Wilmington
8
Common 100
Stock
Rolls-Royce North America Ventures Inc.
Wilmington
8
Common 100
Stock
Rolls-Royce North America Inc.
Wilmington
8
Common 100
Stock
193
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
SUBSIDIARIES
% of class
Company name
Address
Class of shares
 held
Rolls-Royce North American Technologies
Wilmington
8
Common 100
Inc� Stock
Rolls-Royce Oman LLC
Bait Al Reem, Business Office #131, Building No 81, Way No 3409,
Ordinary
100
Block No 234, Al Thaqafa Street, Al Khuwair, PO Box 20, Postal
Code 103, Oman
Rolls-Royce Operations (India) Birla Tower West, 2nd Floor, 25 Barakhamba Road, New Delhi,
Ordinary
100
Private Limited
2, 6
11
0
001, India
Rolls-Royce Overseas Holdings Limited
4
Derby
7
Ordinary 100
Ordinary A 100
Rolls-Royce Overseas Investments Limited
4
Derby
7
Ordinary
100
Rolls-Royce Placements Limited
2
London
3
Ordinary
100
Rolls-Royce plc
London
3
Ordinary
100
Rolls-Royce Power Engineering Limited
Derby
7
Ordinary
100
Rolls-Royce Power Systems AG
Maybachplatz 1, 88045, Friedrichshafen, Germany
Ordinary
100
Rolls-Royce Retirement Savings Trust
Derby
7
Ordinary
100
Limited
2, 6
Rolls-Royce Saudi Arabia Limited
3010 – Al Arid, Riyadh 13332 – 7663, Saudi Arabia
Cash shares
100
Rolls-Royce Singapore Pte. Ltd.
6 Shenton Way, #33-00 OUE, Downtown Singapore 068809,
Ordinary
100
Singapore
Rolls-Royce SMR Limited
Derby
7
Ordinary
70.5
Rolls-Royce Solutions (Suzhou) Co. Ltd
9 Long Yun Road, Suzhou Industrial Park, Suzhou 215024,
Ordinary
100
Jiang Su, China
Rolls-Royce Solutions Africa (Pty) Limited
36 Marconi Street, Montague Gardens, Cape Town, 7441,
South Africa
Capital Stock
100
Rolls-Royce Solutions America Inc.
West Tenth Street, Wilmington – Delaware DE 19808,
100
United States
Ordinary
100
Rolls-Royce Solutions Asia Pte. Limited
10 Tukang Innovation Drive, Singapore 618302
Ordinary
100
Rolls-Royce Solutions Augsburg GmbH
Dasinger Strasse 11, 86165, Augsburg, Germany
Capital Stock
100
Rolls-Royce Solutions Benelux B.V.
Merwedestraat 86, 3313 CS, Dordrecht, Netherlands
Ordinary
100
Rolls-Royce Solutions Brasil Limitada
Via Anhanguera, KM 29203, 05276-000 São Paulo – SP, Brazil
Quotas
100
Rolls-Royce Solutions Enerji Deniz Ve Hatira Sokak, No. 5, Ömerli Mahellesi, 34555 Arnavutköy,
Ordinary
100
Savunma Anonim Şirketi Istanbul, Turkey
Rolls-Royce Solutions France S.A.S.
Immeuble Colorado, 8/10 rue de Rosa Luxembourg-Parc des
Ordinary
100
Bellevues 95610, Erangy-sur-Oise, France
Rolls-Royce Solutions GmbH
Maybachplatz 1, 88045, Friedrichshafen, Germany
Capital Stock
100
Rolls-Royce Solutions Hong Kong Limited
14/F, Chinabest International Centre, 8 Kwai On Road, Kwai Chung,
Ordinary
100
N.T., Hong Kong
Rolls-Royce Solutions Ibérica s.l.u.
Paseo de las Flores 46, 28823 Coslada, Madrid, Spain
Ordinary
100
Rolls-Royce Solutions Israel Limited
6 Meir Ariel St., Natanya, Israel
Ordinary
100
Rolls-Royce Solutions Italia S.r.l.
Via Aurelia Nord, 328, 19021 Arcola (SP), Italy
Capital Stock
100
Rolls-Royce Solutions Japan Co. Limited
14-3, Nishitenma 4-chome, Kita-ku, Osaka 530-0047, Japan
Ordinary
100
Rolls-Royce Solutions Korea Limited
Unit 301, The Square, 9 Mulgeum-ro, Mulgeum-eup, Yangsan-si,
Ordinary
100
Gyeongsangnam-do 50657, Republic of Korea
Rolls-Royce Solutions Liège Holding S.A.
Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium
Ordinary
100
Rolls-Royce Solutions Liège S.A.
Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium
Ordinary
100
Rolls-Royce Solutions Magdeburg GmbH
Friedrich-List-Strasse 8, 39122 Magdeburg, Germany
Capital Stock
100
Rolls-Royce Solutions Malaysia Sdn. Bhd.
Platinum Sentral, Jalan Stesen Sentral 2, 50470 Kuala Lumpur,
Office no. B329, Spaces Platinum Sentral, Lot G02-G07, Level 3
Ordinary
100
Malaysia
Rolls-Royce Solutions Mexico City S.A. Xochicalco 620, Colonia Letran Valle, Delegacion Benito Juarez, Common 100
de C.V. Mexico City 03650, Mexico Shares
Rolls-Royce Solutions Middle East FZE
S3B5SR06, Jebel Ali Free Zone, South P.O. Box 61141, Dubai,
Ordinary
100
United Arab Emirates
Rolls-Royce Solutions Ruhstorf GmbH
Rotthofer Strasse 8, 94099 Ruhstorf a.d. Rott, Germany
Capital Stock
100
Rolls-Royce Solutions South Africa (Pty) 36 Marconi Street, Montague Gardens, Cape Town, 7441,
Ordinary
100
Limited South Africa
Rolls-Royce Solutions Trading and REGUS Service Office, Office No. 1034, Shoumoukh Tower, 10th
Ordinary
49
Contracting LLC
5
Floor, Tower B, C-Ring Road, Al Sadd, PO Box 207207, Doha, Qatar
Rolls-Royce Solutions UK Limited
Derby
7
Ordinary
100
Rolls-Royce Solutions Willich GmbH
Konrad-Zuse-Str. 3, 47877, Willich, Germany
Capital Stock
100
Rolls-Royce Sp z.o.o.
Opolska 100 31-323, Krakow, Poland
Ordinary
100
Rolls-Royce Submarines Limited
Atlantic House, Raynesway, Derby, Derbyshire DE21 7BE,
Ordinary
100
United Kingdom
194
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
SUBSIDIARIES
% of class
Company name
Address
Class of shares
 held
Rolls-Royce Technical Support Sarl
Site Motoristes Vendor-Village, 46 avenue Jean Monnet, 31770,
Ordinary
100
Colomiers, France
Rolls-Royce Total Care Services Limited
4
Derby
7
Ordinary
100
Rolls Royce Turkey Güç Çözümleri San. ve Cumhuriyet Mah. Yakacık D-100 Kuzey Yanyol Cad. No: 25 Kartal,
Cash shares
100
Tic.Ltd.Şti. Istanbul, Türkiye
Rolls-Royce UK Pension Fund Trustees
Derby
7
Ordinary
100
Limited
2
Rolls-Royce Zweite Beteiligungs GmbH
Eschenweg 11,
15827
Blankenfelde-Mahlow OT Dahlewitz, Germany
Capital Stock
100
Ross Ceramics Limited
4
Derby
7
Ordinary
100
Servowatch Systems Limited
4
London
3
Ordinary
100
Sharing in Growth UK Limited
11
Moor Lane, Allenton, Derby DE24 9HY, United Kingdom
Limited by
100
guarantee
Spare IPG 20 Limited
4
London
3
Ordinary
100
Spare IPG 21 Limited
2
London
3
Ordinary
100
Spare IPG 24 Limited
4
London
3
Ordinary
100
Spare IPG 32 Limited
4
London
3
Ordinary
100
Spare IPG 4 Limited
2
London
3
Ordinary
100
Team Italia Marine S.R.L.
Kampanien, Via Luigi Einaudi 114/B, 61032 Fano, Pesaro and
Ordinary
100
Urbino, Italy
The Bushing Company Limited
4
London
3
Ordinary
100
Timec 1487 Limited
2
London
3
Ordinary
100
Turbine Surface Technologies Limited
1
Unit 13a, Little Oak Drive, Sherwood Park, Annesley, Ordinary A Nil
Nottinghamshire NG15 0DR, United Kingdom Ordinary B 100
Vessel Lifter Inc.
2
Corporation Service Company, 1201 Hays Street, Tallahassee, Common 100
Florida 32301, United States Stock
Vinters Defence Systems Limited
2
London
3
Ordinary
100
Vinters Engineering Limited
Derby
7
Ordinary
100
Vinters International Limited
4
Derby
7
Ordinary
100
Vinters Limited
4
Derby
7
Ordinary
100
Vinters-Armstrongs (Engineers) Limited
2
London
3
Ordinary
100
Vinters-Armstrongs Limited
2
London
3
Ordinary B
100
Yocova Private Ltd
London
3
Ordinary
100
Yocova PTE. Ltd.
2
6 Shenton Way, #33-00 OUE, Downtown Singapore 068809,
Ordinary
100
Singapore
1 Although the interest held is 50%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records
a non-controlling interest
2 Dormant entity
3 Kings Place, 90 York Way, London N1 9FX, United Kingdom
4 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ended 31 December 2024. Rolls-Royce plc will issue a guarantee pursuant to s479A in relation
to the liabilities of the entity
5 Although the interest held is 49%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records
a non-controlling interest
6 Reporting year end is 31 March 2025
7 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom
8 Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware 19808, United States
9 Entity in liquidation
10 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ending 31 March 2025. Rolls-Royce plc will issue a guarantee pursuant to S479A in relation
to the liabilities of the entity
11 The entity is not included in the consolidation, as Rolls-Royce plc does not have a beneficial interest in the net assets of the entity
12 The entity is accounted for as a joint operation (see note 1 to the Consolidated Financial Statements)
13 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ended 31 December 2025. The Company will issue a guarantee pursuant to s479A in relation
to the liabilities of the entity
14 Entity is accounted for as a joint venture as approval is required from the other shareholder for operationally running the affairs of the entity
195
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
SUBSIDIARIES
Group
interest
% of class held
Company name
Address
Class of shares
 held %
Aero Gearbox International SAS
12
18 Boulevard Louis Sequin, 92700 Colombes, France
Ordinary
50
50
Airtanker Services Limited
Airtanker Hub, RAF Brize Norton, Carterton, Oxfordshire
Ordinary
23�5
23�5
OX18 3LX, United Kingdom
Alpha Leasing (US) (No.2) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Leasing (US) (No.4) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Leasing (US) (No.5) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Leasing (US) (No.6) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Leasing (US) (No.7) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Leasing (US) (No.8) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Leasing (US) LLC
Wilmington
8
Partnership
–
50
(no equity held)
Alpha Partners Leasing Limited
1 Brewer’s Green, London SW1H 0RH, United Kingdom
Ordinary A
100 50
Ordinary B Nil
Beijing Aero Engine Services Company No. 12 Jinhang Middle Road, Shunyi District, (Tianzhu
Capital
50
50
Limited Comprehensive Bonded Zone Bonded Function Zone 2),
Beijing, China
CFMS Limited
43 Queen Square, Bristol BS1 4QP, United Kingdom
Limited by
–
33�3
guarantee
Clarke Chapman Portia Port Services Maritime Centre, Port of Liverpool, Liverpool L21 1LA, Ordinary A 100 50
Limited
2
United Kingdom Ordinary B Nil
Egypt Aero Management Services
9
Maintenance and Technical Works Company Building,
Ordinary
50
50
Room No. 204, Second Floor, Airport Road, El Nozha,
Cairo
EPI Europrop International GmbH
Pelkovenstr. 147, 80992 München, Germany
Capital Stock
28
28
Eurojet Turbo GmbH
Lilienthalstrasse 2b, 85399 Halbergmoos, Germany
Ordinary
33
33
Force MTU Power Systems Private Limited
Mumbai Pune Road, Akurdi, Pune, Maharashtra 411035,
Capital Stock
49
49
India
Genistics Holdings Limited
Derby
7
Ordinary A 100 50
Ordinary B Nil
Global Aerospace Centre for Icing and
1000
Marie-Victorin Boulevard, Longueuil Québec
Ordinary
50
50
Environmental Research Inc.
12
J4G 1A1, Canada
Hoeller Electrolyzer GmbH
14
Alter Holzhafen, 23966 Wismar, Germany
Ordinary
54�2
54�2
Hong Kong Aero Engine Services Limited
33rd Floor, One Pacific Place, 88 Queensway, Hong Kong
Ordinary
50
50
International Aerospace Manufacturing Survey No. 3 Kempapura Village, Varthur Hobli,
Ordinary
50
50
Private Limited
6, 12
Bangalore, KA 560037, India
ITP Next Generation Turbines SL
Parque Tecnologico Edificio 300, 48170, Zamudio,
Ordinary A Nil 25
Vizcaya, Spain Ordinary B 100
Light Helicopter Turbine Engine Company
Suite
119,
9238
Madison Boulevard, Madison, Alabama
Partnership
–
50
(unincorporated partnership)
35
758, United States
(no equity held)
Manse Opus Management Company Third Floor Queensberry House, 3 Old Burlington Street, Limited by
33�3
33�3
Limited
6
London W1S 3AE, United Kingdom guarantee
MEST Co., Limited
97 Bukjeonggongdan 2-gil, Yangsan-si,
Normal
46�8
46�8
Gyeongsangnam-do, 50571, Republic of Korea
MTU Power Systems Sdn. Bhd.
32 Floor, UBN Tower, 20 Jalan P Ramlee, 50250 Kuala
Ordinary A 100 49
Lumpur, Malaysia Ordinary B Nil
MTU Turbomeca Rolls-Royce ITP GmbH
Am Söldnermoos 17, 85399 Hallbergmoos, Germany
Capital Stock
25
25
MTU Turbomeca Rolls-Royce GmbH
Am Söldnermoos 17, 85399 Hallbergmoos, Germany
Capital Stock
33�3
33�3
MTU Yuchai Power Company Limited
No 7 Danan Road, Yuzhou, Yulin, Guangxi, China, 537005,
Capital Stock
50
50
China
N3 Engine Overhaul Services GmbH
Gerhard-Höltje-Strasse 1, D-99310, Arnstadt, Germany
Capital Stock
50
50
& Co KG
N3 Engine Overhaul Services
Gerhard-Höltje-Strasse 1, D-99310, Arnstadt, Germany
Capital Stock
50
50
Verwaltungsgesellschaft Mbh
Rolls Laval Heat Exchangers Limited
2
Derby
7
Ordinary
50
50
Rolls-Royce & Partners Finance (US)
Wilmington
8
Partnership
–
50
(No 2) LLC (no equity held)
Rolls-Royce & Partners Finance (US) LLC
Wilmington
8
Partnership – 50
(no equity held)
196
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Joint ventures and associates
1 Although the interest held is 50%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records
a non-controlling interest
2 Dormant entity
3 Kings Place, 90 York Way, London N1 9FX, United Kingdom
4 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ended 31 December 2024. Rolls-Royce plc will issue a guarantee pursuant to s479A in relation
to the liabilities of the entity
5 Although the interest held is 49%, the Company controls the entity (see note 1 to the Consolidated Financial Statements) and, as a result, consolidates the entity and records
a non-controlling interest
6 Reporting year end is 31 March 2025
7 Moor Lane, Derby, Derbyshire DE24 8BJ, United Kingdom
8 Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware 19809, United States
9 Entity in liquidation
10 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ending 31 March 2025. Rolls-Royce plc will issue a guarantee pursuant to S479A in relation
to the liabilities of the entity
11 The entity is not included in the consolidation, as Rolls-Royce plc does not have a beneficial interest in the net assets of the entity
12 The entity is accounted for as a joint operation (see note 1 to the Consolidated Financial Statements)
13 Entity to take advantage of s479A Companies Act 2006 (s479A) audit exemption for the year ended 31 December 2024. The Company will issue a guarantee pursuant to s479A in relation
to the liabilities of the entity
14 Entity is accounted for as a joint venture as approval is required from the other shareholder for operationally running the affairs of the entity
Group
interest
% of class held
Company name
Address
Class of shares
 held %
SAFYRR Propulsion Limited
2
Derby
7
A Shares Nil 50
B Shares 100
Singapore Aero Engine Services Private
11 Calshot Road, 509932, Singapore
Ordinary
50
50
Limited
Taec Ucak Motor Sanayi AS
2
Levent Mahallesi Prof. Ahmet Kemal Aru Sk. No: 4/1,
Cash Shares
49
49
Beşiktaş, Turkey
Techjet Aerofoils Limited
12
Tefen Industrial Zone, PO Box 16, 24959, Israel
Ordinary A
50 50
Ordinary B 50
TRT Limited
2 Bramble Way, Clover Nook Industrial Estate
Ordinary A Nil 50
Somercotes, Derbyshire DE55 4RH, United Kingdom Ordinary B 100
1C Nil
Turbo-Union GmbH
Lilienthalstrasse 2b, 85399 Halbergmoos, Germany
Capital Stock
40
40
X R Aero Components Limited
12
Xujiawan, Beijiao, Xian 710021, Shaanxi, China
Ordinary
49
49
197
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
FINANCIAL STATEMENTS
JOINT VENTURES AND ASSOCIATES
Report on the audit of the financial statements
Opinion
In our opinion:
— Rolls-Royce Holdings plc’s consolidated financial statements and company financial statements (the “financial statements”) give a true and fair
view of the state of the group’s and of the company’s affairs as at 31 December 2024 and of the group’s profit and the group’s cash flows for
the year then ended;
—
the consolidated financial statements have been properly prepared in accordance with UK-adopted international accounting standards as
applied in accordance with the provisions of the Companies Act 2006;
— the company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and applicable law); and
— the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report, which comprise: the consolidated and company balance sheets as
at 31 December 2024; the consolidated income statement, the consolidated statement of comprehensive income, the consolidated cash flow
statement, the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements,
comprising material accounting policy information and other explanatory information.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in
the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided.
Other than those disclosed in note 7, we have provided no non-audit services to the company or its controlled undertakings in the period under
audit.
Our audit approach
Overview
Audit scope
—
Following our assessment of the risks of material misstatement of the financial statements, including the impact of climate change, we subjected
32 individual components (including three joint ventures) to full scope audits for group reporting purposes, which, with an element of
sub-consolidation, equates to 15 group reporting opinions. In addition, 13 components performed targeted specified audit procedures
contributing to audit coverage.
— The group engagement team audited the company and other centralised functions and balances including those covering the group treasury
operations, corporate taxation, post-retirement benefits, and certain goodwill and intangible asset impairment assessments. The group
engagement team performed audit procedures over the group consolidation and financial statements disclosures.
— The components on which we performed full scope audit procedures, together with the work performed by the group engagement team as
identified above, accounted for 92% of revenue and 79% of profit before taxation.
—
For non-full scope components, which were not considered inconsequential components, we either performed audit procedures over specific
account balances or targeted risk assessment procedures.
— Some centralised audit testing was performed for certain reporting components who are supported by the group’s Finance Service Centres
(FSCs).
—
As part of the group audit supervision process, the group engagement team met with and discussed the approach and results of audit
procedures with component teams and reviewed their audit files and final deliverables. In person site visits to components in the UK, Germany,
US, Hong Kong and Singapore were also performed.
INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF ROLLS-ROYCE HOLDINGS PLC
198
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Independent auditors’ report
Key audit matters
— Long-term contract accounting and associated provisions (group)
— Deferred tax asset recognition and recoverability (group)
— Translation of foreign currency denominated transactions and balances (group)
— Presentation and accuracy of underlying results and disclosure of other one-off items (including exceptional items) (group)
— Recoverability of the company’s investments in subsidiary undertakings (company)
Materiality
— Overall group materiality: £178m (2023: £93m) based on approximately 1.0% of underlying revenue (2023: approximately 0.6% of underlying
revenue).
— Overall company materiality: £149m (2023: £147m) based on approximately 1.0% of total assets.
— Performance materiality: £110m (2023: £70m) (group) and £111m (2023: £110m) (company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the
context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year.
199
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
Key audit matter
How our audit addressed the key audit matter
Long-term contract accounting and associated provisions
(group)
Audit Committee report and note 1 to the consolidated financial
statements – Accounting policies – Revenue recognition and contract
assets and liabilities
The Civil Aerospace and Defence businesses operate primarily with
long-term customer contracts that span multiple periods. These
long-term contracts require a number of assumptions to be made in
order to determine the expected lifetime revenue and costs of the
contract and the amounts of revenue and profit/loss that are recognised
in each reporting period.
Small adjustments in assumptions can have a significant impact on the
results of an individual financial year. Changes to the profile of shop
visits or operating conditions of engines can result in different
performance assumptions and hence cost profiles. Some contracts
include inflation linked price escalations which require judgement to
determine the extent to which future price increases are highly
probable not to reverse and therefore can be recognised. These changes
to forecasts can result in revisions to the revenue previously
recognised.
For Defence, long-term contracts tend to be for a fixed price or based
on a cost plus or target cost reimbursement for qualifying costs and
there are also some flying hours arrangements. For Civil Aerospace
aftermarket contracts, income is earned based on engine flying hours
(EFH). Management is required to estimate this to determine the total
income expected over the life of a contract. The group expects large
engine EFH to grow to 110-115% of pre-pandemic levels during 2025.
In addition, the profitability of Civil Aerospace aftermarket contracts
typically assumes that there will be significant cost improvements over
the lifetime (eight to 15 years) of the contracts. Significant assumptions
need to be made in determining time-on-wing, whether incremental
costs should be treated as wastage or are part of the ongoing cost of
servicing a contract, future exchange rates used to translate foreign
currency income and costs and other operating parameters used to
calculate the projected life cycle. These future costs are also risk adjusted
to take into account forecasting accuracy which represents an additional
judgement.
At the development stage of a programme, agreements are entered
into with certain Civil Aerospace suppliers to share in the risk and
rewards of the contracts (Risk and Revenue Sharing Agreements –
‘RRSA’). This can involve upfront participation fees from the RRSA that
are amortised over the engine production phase. In addition, certain
revenue and costs are recorded in the consolidated income statement
net of the amounts received from the RRSA.
The nature of the Civil Aerospace business gives rise to a number of
contractual guarantees, warranties and potential claims, including the
in-service issues of the Trent 1000 programme. The accounting for
these can be complex and judgemental and may impact the consolidated
income statement immediately or over the life of the contract. The
valuation of provisions for the associated amounts are judgemental and
need to be considered on a contract by contract basis.
We focused our work on a number of contracts where we consider
there to be the highest degree of management judgement or estimation
and designed specific procedures over the long-term contract
accounting targeted at the associated risks. We also sample tested the
remaining population of contracts. The audit procedures performed
included:
—
We attended meetings with Civil Aerospace and Defence engine
programme and customer contract managers in order to understand
the operational matters impacting the performance of specific
contracts and any amendments to contractual arrangements that
could have an impact on performance;
— We obtained and read the relevant sections of a sample of contracts
to understand the key terms including performance obligations and
pricing structures;
—
We assessed how management had forecast engine flying hours
including by considering the downside scenarios modelled and
comparing the assumptions to industry data;
—
We challenged management’s judgments and associated risk
adjustments relating to the risk of engine flying hours, costs and
technical items;
— We re-performed the calculations used to determine the degree of
completion for a sample of contracts and this was also used in
assessing the magnitude of any catch-up adjustments;
—
We compared the previously forecast results of a sample of contracts
with the actual results to assess the performance of the contract and
the historical accuracy of forecasting;
— We verified a sample of costs incurred to third party documentation
to assess the validity of the forecast costs to complete;
— We assessed the assumptions relating to life cycle cost reductions to
determine the likelihood of realisation and where relevant the speed
at which they would be achieved, including the impact on the number
of shop visits, validating these assumptions directly with the senior
programme engineers;
—
We obtained support for the risk adjustments made in respect of
future costs and challenged management’s assumptions through
assessment against historical performance, known technical issues
and the stage of completion of the programme;
— We recalculated the price escalation included within the contracts;
—
We challenged the assessment of provisions for onerous contracts
to determine the completeness of the unavoidable costs to fulfil the
contractual obligations. We also validated the rates used to discount
the future cash flows;
—
We assessed the sensitivity of the Trent 1000 programme to
reasonable changes in estimates, particularly in respect of the repair
and overhaul facility capacity, technical cost creep on the known
issues and cost outturns against previous similar matters, including
whether any costs should be treated as wastage, in determining
whether the judgements were supportable;
—
We read and understood the key terms of a sample of RRSA contracts
to assess whether revenue and costs had been appropriately reflected,
net of the share attributable to the RRSA in the consolidated income
statement;
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INDEPENDENT AUDITORS’ REPORT
Key audit matter
How our audit addressed the key audit matter
Long-term contract accounting and associated provisions
(group) continued
Management have modelled the potential impact of climate change on
its forecasts and has incorporated these estimates into the long-term
contracts for Civil Aerospace, which is the business with the highest
expected exposure to the impact of climate change. This included
incorporating the potential impact of carbon prices on the group’s
direct emissions including engine testing and those of its suppliers and
the potential impact of climate change on commodity prices in cost
estimates. The impact of climate change on long-term contracts is highly
uncertain and requires estimates on carbon prices, the cost and speed
of decarbonisation, the ability of the group and its suppliers to pass on
incremental costs and assessing the associated impact on aviation
demand.
—
With assistance from our valuation experts, we considered the
appropriateness of the key assumptions used by management to
model the impact of climate change, including deploying valuation
experts to benchmark the carbon and commodity price forecasts
utilised. We validated management’s assertions on the ability of
suppliers and the group to pass on incremental costs by reviewing
supplier and customer contracts for price change mechanisms. Where
appropriate we performed independent sensitivity analysis to
determine to what extent reasonably possible changes in these
assumptions could result in material changes to the revenue recorded
in the year and assessed the appropriateness of the associated
disclosures;
—
We read and challenged management’s accounting papers that were
prepared to explain the positions taken in respect of their key contract
judgements;
—
We considered whether there were any indicators of management
bias in arriving at their reported position; and
—
We assessed the adequacy of disclosures in note 1 of the key
judgements and estimates involved in long-term contract accounting.
Based on the work performed, we concur that management’s estimates
for long-term contract accounting and associated provisions are
materially appropriate, in the context of the financial statements taken
as a whole.
Deferred tax asset recognition and recoverability (group)
Audit Committee report, note 1 to the consolidated financial statements
– Accounting policies – Taxation and note 5 to the consolidated financial
statements – Taxation
The recognition and recoverability of deferred tax assets in Rolls-Royce
plc, where there have been significant taxable losses in the past, is
based on a number of significant assumptions. Deferred tax assets can
be recognised in relation to these losses to the extent it is probable
that there will be sufficient future taxable profits to utilise them.
Significant deferred tax assets have been recognised relating to
Rolls-Royce plc on the basis of expected future levels of profitability.
The magnitude of the assets recognised necessitates the need for a
number of assumptions in assessing the future levels of profitability in
the UK over an extended period. This requires assumptions on future
profits from the group’s aftermarket and original equipment sales
including EFH, associated costs and the future exchange rates used to
translate foreign currency denominated amounts.
At 31 December 2024, the group recognised £3,099m (2023: £2,399m)
of deferred tax assets in the UK of which £2,472m (2023: £1,476m) relate
to tax losses. £1,033m of additional deferred tax assets related to tax
losses have been recognised in the year as a result of the latest
assessment which incorporates the impact of Civil Aerospace large
engine orders in 2024, the outcomes of strategic initiatives, continued
growth in Civil Aerospace flying hours and other macro-economic
factors. £629m of potential deferred tax assets in relation to UK losses
remain unrecognised on the basis that management have judged there
are not yet sufficient probable future taxable profits for them to be
utilised against.
We evaluated management’s methodology for assessing the recognition
and recoverability of deferred tax assets, which remains consistent with
the prior year, including the ability to offset certain deferred tax liabilities
and deferred tax assets. Where recognition is supported by the
availability of sufficient probable taxable profits in future periods against
which brought forward tax losses can be utilised, our evaluation of
these future profits considered both the business model and the
applicable UK tax legislation.
We assessed the future profit forecasts of the UK tax group and the
underpinning assumptions including management’s risk weighting of
particular profit streams in Rolls-Royce plc and tested that the
assumptions, including the forecasts for periods beyond the normal
five year forecasting horizon, were reasonable. In doing this, we verified
that the forecasts did not include taxable profit growth that could not
be demonstrated as probable.
Where applicable we assessed the consistency of the forecasts used
to justify the recognition of deferred tax assets to those used elsewhere
in the business, including for long-term contract accounting, for the
going concern assessment and longer term viability statement. We also
assessed the risk adjustments applied by management to these profit
forecasts to future periods that are significantly further in time than
the group’s normal five year forecasting process and considered whether
these appropriately reflect the estimation risk in the longer term
forecasts.
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OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
Key audit matter
How our audit addressed the key audit matter
Deferred tax asset recognition and recoverability (group)
continued
The existence of tax losses brought forward from prior periods and
other deductible temporary differences in Rolls-Royce plc, combined
with the impact of climate change on future forecasts, presents a
heightened risk that deferred tax assets previously recognised may not
be recoverable. Since the recognised deferred tax asset is recoverable
over a long period, management have reflected their assessment of the
impact of climate change within the model forecasting probable taxable
profits. This incorporates multiple assumptions including future carbon
prices, commodity prices, the impact of government action on aviation
demand, the cost and speed of decarbonisation and the ability of
suppliers and Rolls-Royce plc to pass on price changes. To assess the
impact of inherent uncertainty management have performed
sensitivities over key estimates.
We considered the appropriateness of the climate change assumptions
modelled as part of their probability weighted scenarios to forecast
probable profit levels and performed consistent procedures to those
set-out in the long-term contract accounting and associated provisions
key audit matter.
We also performed additional sensitivity analysis to understand whether
reasonably possible changes to these assumptions could lead to a
material change in the recognised asset and where appropriate ensured
that adequate disclosure was provided.
We also assessed the adequacy of disclosures over this area, particularly
the impact of changes in key estimates of the asset recognised and this
has been disclosed in notes 1 and 5.
We did not identify any material uncorrected exceptions from our audit
work.
Translation of foreign currency denominated transactions
and balances (group)
Note 1 to the consolidated financial statements – Accounting policies
– Foreign currency translation
Foreign exchange rate movements influence the reported consolidated
income statement, the consolidated cash flow statement and
consolidated balance sheet. One of the group’s primary accounting
systems that is used by a number of their subsidiaries translates
transactions and balances denominated in foreign currencies at a fixed
budget rate for management information purposes. Foreign currency
denominated transactions and balances are then re-translated to actual
average and closing spot rates through manual adjustments. Due to
the manual nature of the process and significance of the recurring
adjustments needed there is a risk that transactions and balances
denominated in foreign currencies are incorrectly translated in the
consolidated financial statements.
We performed the following specific audit procedures over this area:
—
Obtained an understanding of the process employed by management
to correctly record the translation of foreign currency balances and
transactions;
—
Tested system reports identifying transactions and balances in
transaction currency by agreeing these to general ledger balances;
— Tested, on a sample basis, the manual calculations of the adjustment
needed to correctly record the translation of the foreign currency
denominated transactions and balances;
—
Sampled balances and transactions requiring adjustment by
transaction currency and tested to source data and assessed the
completeness of these balances and transactions;
—
Performed procedures at a group level to understand the work
undertaken by management to identify any unusual movements or
balances; and
—
Agreed the exchange rates used in management’s translation
adjustments to an independent source.
There were no material uncorrected errors from our audit work.
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INDEPENDENT AUDITORS’ REPORT
Key audit matter
How our audit addressed the key audit matter
Presentation and accuracy of underlying results and
disclosure of other one-off items (including exceptional
items) (group)
Note 1 to the consolidated financial statements – Accounting policies
– Presentation of underlying results, note 2 to the consolidated financial
statements – Segmental analysis and note 28 to the consolidated
financial statements – Derivation of summary funds flow statement
In addition to the performance measures prescribed by International
Financial Reporting Standards, the group also presents their results
on an underlying basis, as the Directors believe this better reflects the
performance of the group during the year. The group also presents a
free cash flow metric which the Directors believe reflects the cash
generated from underlying trading. This differs from the cash flows
presented in the consolidated cash flow statement.
The underlying results differ significantly from the reported statutory
results and are used extensively to explain performance to
shareholders. Alternative performance measures can provide investors
with additional understanding of the group’s performance if consistently
calculated, properly used and presented. However, when improperly
used and presented, these non-GAAP measures can mislead investors
and may mask the real financial performance and position. There is
judgement in determining whether items should be excluded from
underlying profit or free cash flow.
A key adjustment between the statutory results and the underlying
results relates to the foreign exchange rates used to translate foreign
currency transactions and balances. The underlying results reflect the
achieved rate on foreign currency derivative contracts settled in the
period and retranslates assets and liabilities at the foreign currency
rates at which they are expected to be realised or settled in the future.
As the group can influence which derivative contracts are settled in
each reporting period it has the ability to influence the achieved rate
and hence the underlying results.
One of the items excluded from underlying profit is exceptional
restructuring costs associated with the transformation programme.
Judgement is required to determine what costs are related to this
programme to warrant exclusion from underlying profit.
We have considered the judgements taken by management to determine
what should be treated as an exceptional item and the translation of
foreign currency amounts and obtained corroborative evidence for
these.
We also considered whether there were items that were recorded within
underlying profit that are exceptional in nature and should be reported
as an exceptional item. No such material items were identified. As part
of this assessment we challenged management’s rationale for the
designation of certain items as exceptional or one-off and assessed
such items against the group’s accounting policy, considering the nature
and value of those items.
Within underlying results, foreign currency transactions are presented
at rates achieved on derivative contracts hedging the net operating
cash flows of the group and monetary assets and liabilities are
retranslated at rates forecast to be achieved on derivative contracts
when the associated cash flows occur. We have agreed these forecast
rates to the profile of the derivatives that are expected to mature in the
future and tested their application to the relevant monetary assets and
liabilities.
We tested the reconciling items between the underlying operating
profit and free cash flow disclosed in note 28 including verifying that
the items adjusted for are consistent with the prior year. This included
validating a sample of restructuring costs and verifying that the costs
were sufficiently related to the transformation programme. We also
considered whether free cash flow contains material one-off items
which require further disclosure.
We assessed the appropriateness and completeness of disclosures of
the impact of one-off or non-underlying items primarily in notes 1, 2
and 28 to the consolidated financial statements and found them to be
appropriate. This included assessing the explanations management
provided on the reconciling items between underlying performance
and statutory performance in note 2.
Overall we found that the classification judgements made by
management were in line with their policy for underlying results and
exceptional items, had been consistently applied and there are no
material uncorrected misstatements resulting from our testing.
Recoverability of the company’s investments in subsidiary
undertakings (company)
Note 2 to the company financial statements – Investments – subsidiary
undertakings
Investments in subsidiary undertakings of £14,905m (2023: £14,810m)
are accounted for at cost less provision for impairment in the company
balance sheet at 31 December 2024�
Investments are tested for impairment if impairment indicators exist. If
such indicators exist, the recoverable amounts of the investments in
subsidiaries are estimated in order to determine the extent of the
impairment loss, if any. Any such impairment loss is recognised in the
income statement�
A review of potential indicators of impairment was performed by
management focusing on the developments in the year, concluding
that no such indicators were present and therefore that the investments’
carrying values remain recoverable.
We have evaluated management’s assessment around recoverability of
the investment in subsidiary undertakings. In doing so we have
considered whether any potential indicators of impairment existed at
31 December 2024. In doing this, we considered the market
capitalisation of the company at 31 December 2024, which exceeded
the carrying value of investments in subsidiary undertakings. We have
compared the performance of the group against the 2023 forecasts.
O
verall, we found that management’s judgement that there has been
no indicator of potential impairment to be appropriate.
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OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they operate.
Our scoping is based on the group’s consolidation structure. We define a component as a single reporting unit which feeds into the group
consolidation. Of the group’s approximately 350 reporting components, 32 individual components (including three joint ventures) were subject
to full scope audits, which, with an element of sub-consolidation, equates to 15 group reporting opinions; 13 components performed targeted
specified audit procedures contributing to audit coverage.
Under our audit methodology, we test both the design and operation of relevant business process controls over significant risks and perform
substantive testing over each financial statement line item.
The group operates Finance Service Centres (FSCs) to bulk process financial transactions in Derby (UK), Indianapolis (US) and Bengaluru (India).
Based on our assessment it is not possible to fully test revenue and profit centrally as certain key processes, such as long-term contracting,
remain within the business due to their nature and are not handled by the FSCs.
Further specific audit procedures over central functions, the group consolidation and areas of significant judgement (including corporate
taxation, certain goodwill balances and intangible assets, treasury and post-retirement benefits) were performed by the group audit team.
This scope of work, together with the additional procedures performed at a group level as identified above, covered 92% of revenue and 79%
of profit before tax.
Where work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those
reporting units to be able to conclude whether sufficient appropriate audit evidence had been obtained as a basis for our opinion on the
consolidated financial statements.
We issued formal written instructions to all component auditors setting out the audit work to be performed by each of them and maintained
regular communication with the component auditors throughout the audit cycle. These interactions included attending certain component
clearance meetings and holding regular conference calls, as well as reviewing and assessing any matters reported. The group engagement team
also reviewed selected audit working papers for certain component teams to evaluate the sufficiency of audit evidence obtained and fully
understand the matters arising from the component audits.
In addition, senior members of the group engagement team have visited component teams across all the group’s major segments in the UK,
Germany, US, Hong Kong and Singapore. These visits were in person for these locations. They included meetings with the component auditor
and with local management.
Reflective of its nature, our audit of the company financial statements focused on the investments in subsidiary undertakings and validating
amounts owed to subsidiary undertakings.
The impact of climate risk on our audit
As part of our audit we made enquiries of management to understand the process they adopted to assess the extent of the potential impact of
climate risk on the group’s and company’s financial statements and to support the disclosures made within the Sustainability section of the
Strategic report. In addition to enquiries with management, we understood the governance process in place to assess climate risk, reviewed the
group’s assessment of climate related risk including both physical and transition risks and read additional reporting made on climate related
matters, including its CDP public submission and the group’s disclosures in line with the Task Force on Climate-related Financial Disclosures
(TCFD) framework.
We held meetings with management including the group’s sustainability team to consider the completeness of management’s climate risk
assessment and its consistency with internal climate plans and board minutes, including whether the time horizons management have used take
account of all relevant aspects of climate change such as transition risks. We also considered the consistency with the group’s communications
on climate related impacts. We challenged how management had considered longer term physical risks such as severe weather related impacts,
and shorter-term transitional risks such as the introduction of carbon taxes.
We considered the following areas which depend on medium to long-term profit or cash flow forecasts to potentially be materially impacted by
climate risk and consequently we focused our audit work in these areas: long-term contract accounting in the UK Civil business (including
contract loss provisions); the recoverability of deferred tax assets in the UK and the recoverability of the carrying value of goodwill and certain
intangible assets. Our findings were reported to and discussed with the Audit Committee and management. Where significant, further details of
how climate change has been considered in these areas and our audit response is given in the key audit matters above.
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INDEPENDENT AUDITORS’ REPORT
To respond to the audit risks identified in these areas we tailored our audit approach to address these, in particular, we:
— Deployed our valuation experts to benchmark carbon pricing and key commodity price forecasts against forecasts of future prices and found
them to be materially reasonable. These have been incorporated by management in their forecasts of the group’s future cost base for
long-term contract accounting and associated provisions as well as scenarios utilised in assessing the recoverability of deferred tax assets,
goodwill and other assets;
— Considered the reasonableness of management’s assertion that climate change is unlikely to have a material impact on aviation demand by
comparing management’s EFH forecasts against other industry benchmarks and considering the sensitivity of EFH to different GDP growth
rates expected under differing climate scenarios;
— Verified that estimates of capital and cash costs from reductions to the group’s scope 1 and scope 2 emissions have been incorporated in the
group’s forecasts including those used for going concern and the disclosures around the viability of the group that are included in the
Strategic Report;
—
Validated management’s judgement that climate change is unlikely to have a material impact on other estimates at 31 December 2024
including the recoverability of inventory or the expected credit loss provision associated with trade receivables and contract assets by
considering the short timeframe these assets are expected to be utilised in compared to the period over which transition and physical risks
are expected to arise; and
—
Where appropriate, performed independent sensitivity analysis to determine to what extent reasonably possible changes in the climate related
assumptions in the group’s forecasts could result in material changes to the impacted balances and assessed the appropriateness of the
associated disclosures.
We also considered the consistency of the disclosures in relation to climate change (including the disclosures in the Sustainability section of the
Strategic Report) within the Annual Report and our knowledge obtained from our audit. This included considering the models management used
in the TCFD scenario analysis and if the assumptions in those models are consistent with the assumptions used elsewhere in the financial
statements�
As disclosed within the Sustainability section of the Strategic Report the achievement of net zero by 2050 will require significant change across
the aviation sector in particular, including widespread adoption of Sustainable Aviation Fuels or other alternative fuel sources. Management have
not included the incremental cost of this in its longer term forecasts, based on the assumptions that such costs can be passed onto customers
and will occur after the average life of the current existing contracts.
Our procedures did not identify any material impact in the context of our audit of the financial statements as a whole for the year ended
31December 2024. The future estimated financial impacts of climate risk are clearly uncertain given the medium to long-term time frames involved
and their dependency on how governments, global markets, corporations and society respond to the issue of climate change and the speed of
technological advancements that may be necessary. Accordingly, financial statements cannot capture all possible future outcomes as these are
not yet known.
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OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – group
Financial statements – company
Overall materiality
£178m (2023: £93m). £149m (2023: £147m).
How we determined it
Approximately 1.0% of underlying revenue (2023:
approximately 0.6% of underlying revenue)
Approximately 1.0% of total assets
Rationale for benchmark
applied
We have consistently used underlying revenue to determine
materiality as opposed to a profit based benchmark. This
is because there is considerable volatility in profit before
tax as a result of revenue recognition under IFRS 15 and
from the fair value movement in the group’s derivatives.
Underlying revenue continues to be a key performance
metric for the group and is more stable than the profit
metric. We have increased the percentage revenue
measure used to determine materiality to 1.0% compared
to 0.6% for 2023. This reflects the growth in the business
following the post-COVID 19 pandemic recovery and further
stabilisation of the industry. This is also a commonly used
benchmark level for revenue based materiality. In
conjunction with this increase we reduced our performance
materiality level to 62.5% (2023: 75%) in order to limit the
impact of the overall materiality increase on the extent of
our detailed audit testing.
We determined our materiality based on total assets, which
is more applicable than a performance-related measure
as the company is an investment holding company for the
group�
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £6m and £75m. Certain components were audited to a local statutory audit materiality
that was also less than our overall group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected
misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and
extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance
materiality was 62.5% (2023: 75%) of overall materiality, amounting to £110m (2023: £70m) for the group financial statements and 75% (2023: 75%)
of overall materiality, amounting to £111m (2023: £110m) for the company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation
risk and the effectiveness of controls – and concluded that an amount in the middle of our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £7m (group audit) (2023:
£3m) and £7m (company audit) (2023: £7m) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative
reasons�
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INDEPENDENT AUDITORS’ REPORT
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the company’s ability to continue to adopt the going concern basis of accounting
included:
— Testing the model used for management’s going concern assessment which is primarily a liquidity assessment given there are no significant
financial covenants in its committed debt facilities. Management’s assessment covered the 18 months from the balance sheet date to 30 June
2026. We focused on this period and also considered the subsequent six months to the end of 2026;
— Management’s base case forecasts are based on its normal budget and forecasting process for each of its businesses for the next five years.
We understood and assessed this process by business including the assumptions used for 2025 and 2026 and assessed whether there was
adequate support for these assumptions. We also considered the reasonableness of the monthly phasing of cash flows. A similar assessment
was performed on the downside cash flows, including understanding of the scenarios modelled by management, how they were quantified
and the resultant monthly phasing of the downside cash flow forecast;
—
We have read and understood the key terms of all committed debt facilities to understand any terms, covenants or undertakings that may
impact the availability of the facility;
—
Using our knowledge from the audit and assessment of previous forecasting accuracy we conducted our own stress tests to apply to
management’s cash flow forecasts. We overlaid these tests on management’s forecasts to form our own view on management’s downside
forecasts. This included consideration of management’s assessment of the impact of climate change and the likelihood of any downside risks
crystallising in the period to 30 June 2026;
—
We considered the potential mitigating actions that management may have available to it to reduce costs, manage cash flows or raise additional
financing and assessed whether these were within the control of management and possible in the period of the assessment; and
— We assessed the adequacy of disclosures in the Going concern statement and statements in note 1 of the consolidated and company financial
statements and found these appropriately reflect the key areas of uncertainty identified.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group’s and the company’s ability to continue as a going concern for a period of at least twelve
months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of
the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group’s and the company’s
ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw
attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the
going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.
The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be
materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We
have nothing to report based on these responsibilities.
With respect to the Strategic report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act 2006
have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as
described below.
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors’ report for
the year ended 31 December 2024 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not
identify any material misstatements in the Strategic report and Directors’ report.
Directors’ Remuneration
In our opinion, the part of the Remuneration Committee report to be audited has been properly prepared in accordance with the Companies
Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate
governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other
information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance
statement, included within the governance report is materially consistent with the financial statements and our knowledge obtained during the
audit, and we have nothing material to add or draw attention to in relation to:
— The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
—
The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an
explanation of how these are being managed or mitigated;
—
The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of
accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so
over a period of at least twelve months from the date of approval of the financial statements;
—
The directors’ explanation as to their assessment of the group’s and company’s prospects, the period this assessment covers and why the
period is appropriate; and
— The directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet
its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary
qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in scope than an audit
and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in
alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the
financial statements and our knowledge and understanding of the group and company and their environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:
—
The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the
information necessary for the members to assess the group’s and company’s position, performance, business model and strategy;
— The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and
— The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance with the
Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.
208
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
INDEPENDENT AUDITORS’ REPORT
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities in respect of the financial statements, the directors are responsible for the
preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either
intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,
outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related
to the regulations of country aviation authorities such as the Civil Aviation Authority, import and export restrictions including sanctions, and the
UK Bribery Act, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the financial statements such as the Listing Rules of the UK Financial Conduct
Authority, the Companies Act 2006 and tax legislation. We evaluated management’s incentives and opportunities for fraudulent manipulation
of the financial statements (including the risk of override of controls), and determined that the principal risks were related to (1) posting
inappropriate journal entries to manipulate financial results; (2) management bias in significant accounting estimates such as long-term contract
accounting and associated provisions; (3) the sale of Civil engines to joint ventures for no clear commercial purpose or above market prices; and
(4) inappropriately including or excluding transactions from the group’s underlying or free cash flow alternative performance metrics. The group
engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response
to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors included:
— Discussions throughout the year with management, internal audit, the group’s legal counsel, and the head of ethics and compliance, including
consideration of known or suspected instances of non-compliance with laws and regulation and fraud;
— Reading the minutes of the group’s Safety, Energy Transition & Tech Committee and assessment of ‘speak-up’ matters reported through the
group’s Ethics Line and the results of management’s investigation of such matters;
— Verifying sales of spare engines to joint ventures are in line with the approved timetable and are at a price supported by external valuation;
— Reading the minutes of Board meetings to identify any inconsistencies with other information provided by management;
— Reviewing legal expense accounts to identify significant legal spend that may be indicative of non-compliance with laws and regulations;
—
Challenging assumptions and judgements made by management in determining significant accounting estimates (because of the risk of
management bias), in particular in relation to long-term contract accounting and associated provisions,
— Identifying and testing unusual journal entries, in particular journal entries posted with unusual account combinations, and testing all material
consolidation journals; and
—
Challenging why certain items are excluded or included from underlying profit or free cash flow and review of disclosures included in the
Annual Report explaining and reconciling alternative performance measures to statutory metrics.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with
laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting
a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.
However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to
target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a
conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
209
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
INDEPENDENT AUDITORS’ REPORT
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent
in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
— we have not obtained all the information and explanations we require for our audit; or
— adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches
not visited by us; or
— certain disclosures of directors’ remuneration specified by law are not made; or
— the company financial statements and the part of the Remuneration Committee report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 3 May 2018 to audit the financial statements for
the year ended 31 December 2018 and subsequent financial periods. The period of total uninterrupted engagement is seven years, covering the
years ended 31 December 2018 to 31 December 2024.
Other matter
The company is required by the Financial Conduct Authority Disclosure Guidance and Transparency Rules to include these financial statements
in an annual financial report prepared under the structured digital format required by DTR 4.1.15R – 4.1.18R and filed on the National Storage
Mechanism of the Financial Conduct Authority. This auditors’ report provides no assurance over whether the structured digital format annual
financial report has been prepared in accordance with those requirements.
Ian Morrison (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2025
210
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
INDEPENDENT AUDITORS’ REPORT
Independent assurance report
To the stakeholders of Rolls-Royce Holdings plc
1. Introduction and objectives of work
Bureau Veritas UK Limited (Bureau Veritas) has been engaged by Rolls-Royce
Holdings plc (Rolls-Royce) to provide limited assurance of its selected
sustainability performance indicators for inclusion in its 2024 Annual Report
(the ‘Report’). The objective is to provide assurance to Rolls-Royce and its
stakeholders over the accuracy and reliability of the reported information
and data.
2. Scope of work
The scope of our work was limited to assurance over the following
information included within the Report for the period 1 January to
31 December 2024 (the ‘Selected Information’):
— Total Energy Consumption;
—
Total Scope 1 and 2 Greenhouse Gas (GHG) Emissions (market based):
Operations, Facility, and Product Testing activities;
— Total Solid and Liquid Waste Generated;
— Recycling and Recovery Rate (%);
— Number of Total Reportable Injuries;
—
Number of People Reached Through Science, Technology, Engineering,
and Mathematics (STEM) Education Outreach Programmes; and
— Employee Engagement Score – % Response Rate.
3. Reporting criteria
The Selected Information needs to be read and understood together with
the Rolls-Royce ‘Sustainability Data Basis of Reporting’, as set out at https://
www.rolls-royce.com/sustainability/performance/reporting-approach.aspx.
These internal definitions draw on externally available guidance, the
Greenhouse Gas Protocol Corporate Accounting and Reporting standard
(revised edition).
4. Limitations and exclusions
Excluded from the scope of our work is assurance of information relating to:
— Activities outside the defined assurance period;
—
Positional statements of a descriptive or interpretative nature, or of
opinion, belief, aspiration or commitment to undertake future actions; and
—
Other information included in the Report other than the Selected
Information, including but not limited to normalised figures, total
reportable injury rate etc.
The following limitations should be noted:
—
This limited assurance engagement relies on a risk based selected
sample of sustainability data and the associated limitations that this entails.
—
The reliability of the reported data is dependent on the accuracy of
metering and other production measurement arrangements employed
at site level, not addressed as part of this assurance.
—
This independent statement should not be relied upon to detect all errors,
omissions or misstatements that may exist.
5. Responsibilities
This preparation and presentation of the Selected Information in the Report
are the sole responsibility of the management of Rolls-Royce.
Bureau Veritas was not involved in the drafting of the Report or of the
Reporting Criteria. Our responsibilities were to:
—
obtain limited assurance about whether the Selected Information has
been prepared in accordance with the Reporting Criteria;
—
form an independent conclusion based on the assurance procedures
performed and evidence obtained; and
— report our conclusions to the Directors of Rolls-Royce.
6. Assessment standard
We performed our work to a limited level of assurance in accordance with
International Standard on Assurance Engagements (ISAE) 3000 Revised,
Assurance Engagements Other than Audits or Reviews of Historical
Financial Information (effective for assurance reports dated on or after
December 15, 2015), issued by the International Auditing and Assurance
Standards Board.
7. Summary of work performed
As part of our independent assurance, our work included:
1�
Conducting interviews with relevant personnel of Rolls-Royce – including
the central corporate team and representatives from a selection of sites;
2�
Reviewing the data collection and consolidation processes used to
compile Selected Information, including assessing assumptions made, and
the data scope and reporting boundaries;
3� Reviewing documentary evidence provided by Rolls-Royce;
4�
Agreeing a selection of the Selected Information to the corresponding
source documentation;
5�
Reviewing Rolls-Royce systems for quantitative data aggregation and
analysis;
6� Assessing the disclosure and presentation of the Selected Information to
ensure consistency with assured information;
7.
Carrying out 6 remote site visits to Inchinnan Scotland, Oberursel Germany,
Cypress USA, Indianapolis Test Cell #157 USA, Turkey, Liege Belgium, and
three physical site visits to Bristol UK, Friedrichshafen Germany, and
Augsburg Germany, selected on a risk-based basis, following discussion
between Bureau Veritas and Rolls-Royce, with consideration of
the contribution to assured data, geographical contribution, and type of
operations;
8�
Reperforming a selection of aggregation calculations of the Selected
Information; and
9� Reperforming greenhouse gas emissions conversions calculations.
A 5% materiality threshold was applied to this assurance. It should be noted
that the procedures performed in a limited assurance engagement vary in
nature and timing from, and are less in extent than for, a reasonable
assurance engagement. Consequently, the level of assurance obtained in
a limited assurance engagement is substantially lower than the assurance
that would have been obtained had a reasonable assurance engagement
been performed.
8. Conclusion
On the basis of our methodology and the activities and limitations described
above nothing has come to our attention to indicate that the Selected
Information is not fairly stated in all material respects.
KPI Value
Total Energy Consumption (MWh) 1,624,298
Total Scope 1 Greenhouse Gas (GHG) Emissions (tCO
2
e) 235,170
Total Scope 2 Greenhouse Gas (GHG) Emissions,
market-based (tCO
2
e) 65,941
Total Solid and Liquid Waste (‘000 metric tonnes) 60�8
Recycling and Recovery Rate (%) 61�2
Number of Total Reportable Injuries 126
Number of People Reached Through STEM Education
Outreach Programmes 1,026,401
Employee Engagement Score – Response Rate (%) 74
9. Statement of independence, integrity and competence
Bureau Veritas is an independent professional services company that
specialises in quality, environmental, health, safety and social
accountability with over 190 years history. Its assurance team has extensive
experience in conducting verification over environmental, social, ethical
and health and safety information, systems and processes.
Bureau Veritas operates a certified
1
Quality Management System which
complies with the requirements of ISO 9001:2015, and accordingly maintains
a comprehensive system of quality control including documented policies
and procedures regarding compliance with ethical requirements,
professional standards, quality reviews and applicable legal and regulatory
requirements which we consider to be equivalent to ISQM 1 & 2
2
�
Bureau Veritas has implemented and applies a Code of Ethics, which meets
the requirements of the International Federation of Inspections Agencies
(IFIA)
3
, across the business to ensure that its employees maintain integrity,
objectivity, professional competence and due care, confidentiality,
professional behaviour and high ethical standards in their day-to-day
business activities. We consider this to be equivalent to the requirements
of the IESBA code
4
. The assurance team for this work does not have any
involvement in any other Bureau Veritas projects with Rolls-Royce.
Bureau Veritas UK Ltd
Registered in England & Wales, Company Number: 1758622
Registered Office: Suite 206 Fort Dunlop, Fort Parkway,
Birmingham, B24 9FD
London, 25 February 2025
1 Certificate available on request
2 International Standard on Quality Management 1 (Previously International Standard on
Quality Control 1) & International Standard on Quality Management 2
3 International Federation of Inspection Agencies – Compliance Code – Third Edition
4 Code of Ethics for Professional Accountants issued by the International Ethics Standards
Board for Accountants
211
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
Sustainability assurance statement
In 2024, our total gross Scope 1 + 2 greenhouse gas (GHG) emissions were 384,561 tonnes of carbon dioxide equivalent (tCO
2
e). This represents
a increase of 17% compared with 327,875 tCO
2
e in 2023�
Aspect tCO
2
e 2019 2020 2021 2022 2023 2024
Emissions from activities for
which the Company own or
control including the
combustion of fuel and
operation of facilities. [Direct
GHG Emissions (Scope 1)]
Global
(excluding UK)
137,504 129,050 139,360 123,807 106,275 99,924
UK 90,522 84,606 72,279 101,987 72,238 135,246
Total 228,027 213,656 211,639 225,794 178,513 235,170
Emissions from the purchase
of electricity, heat, steam and
cooling purchased for our own
use. [Indirect GHG Emissions
(Scope 2) location-based]
Global
(excluding UK)
170,526 145,140 115,421 97,612 91,176 90,319
UK 80,023 60,568 53,210 52,762 58,185 59,071
Total 250,549 205,708 168,631 150,374 149,361 149,391
Total gross GHG emissions
(Scope 1 + Scope Location
Based)
Global
(excluding UK)
308,031 274,190 254,781 221,420 197,451 190,243
UK 170,545 145,175 125,489 154,749 130,424 194,317
Total 478,576 419,365 380,270 376,168 327,875 384,561
Energy consumption used to
calculate above emissions –
kWh
Global
(excluding UK)
1,084,719,815 985,357,932 954,056,653 856,063,249 781,982,344 750,899,511
UK 738,001,393 655,550,629 590,689,817 732,077,990 648,552,229 873,398,863
Total 1,822,721,208 1,640,908,561 1,544,746,470 1,588,141,239 1,430,534,573 1,624,298,374
Intensity Ratio (total GHG
emissions per £m revenue)
Total 29�9 36�5 33�9 27.9 19�9 20.3
Emissions from the purchase
of electricity, heat, steam and
cooling purchased for our own
use. [Indirect GHG Emissions
(Scope 2) market-based]
Global
(excluding UK)
132,030 92,249 90,871 77,578 70,598 41,673
UK 21,594 1,628 1,484 1,293 1,365 24,268
Total 153,624 93,877 92,355 78,871 71,963 65,941
Total gross GHG emissions
(Scope 1 + Scope Market
Based)
Global
(excluding UK)
269,535 221,299 230,232 201,386 176,872 141,547
UK 112,116 86,235 73,763 103,280 73,603 159,514
Total 381,651 307,534 303,995 304,665 250,476 301,061
Outside of Scopes Global
(excluding UK)
4,329 – – 1,350 42 2,898
UK – – – – 7,712 991
Total 4,329 – – 1,350 7,754 3,889
Additional supporting
information Electricity
purchased from renewable
sources – kWh
Global
(including UK)
321,775,488 379,246,175 303,672,640 301,419,960 315,822,645 285,504,613
Energy generated on-site from
renewable sources – kWh
Global
(including UK)
6,791,044 6,730,570 8,237,037 8,120,644 6,313,137 9,524,077
The numbers included in this table in respect of our greenhouse gas
emissions for the years 2019 to 2023 have been re-presented following
the identification of a miscalculation of some of the data previously
reported. The impact is on voluntary Scope 2 market-based emissions
data only, and has required minor updates to other figures in this table.
The information presented in this table can be compared to the table
on page 210 of the 2023 Annual Report. The mandatory reported
emissions data disclosed in the strategic report for the relevant years
on progress against Scope 1 + 2 targets are unaffected and remain
accurate. There has been no impact to tax liabilities.
The above figures include 285,504,613 kWh of renewable energy
purchases either backed by the Renewable Energy Guarantees of
Origin (REGO) scheme in the UK or the Guarantees of Origin (GoO)
from a relevant EU Member State. This energy is used by the majority
of our facilities in the UK, US and Germany. Our EACs have been sourced
mainly from solar and wind with some hydro included for EU locations.
In addition, the above figures include 9,524,077 kWh of electricity and
heat generated on-site from renewable energy sources, including solar
panels and ground source heat pumps.
We include the reporting of fugitive emissions of hydrofluorocarbons
(HFCs), associated with air conditioning equipment, into our GHG
emissions figures. In 2024, these emissions have been include from our
global portfolio.
With the exceptions noted above, we have reported on the underlying
energy use and emission sources required under the Companies
(Directors’ Report) and Limited Liability Partnerships (Energy and
Carbon Report) Regulations 2018.
We have used the GHG Protocol Corporate Accounting and Reporting
Standard (revised edition) as of 31 December 2014 utilising the
operational control approach, supplemented by the GHG Reporting
Guidance for the Aerospace Industry (version 3) and emission factors
from the UK Government’s GHG Conversion Factors for Company
Reporting 2024. We report our emissions of: carbon dioxide, methane,
nitrous oxide, hydrofluorocarbons and perfluorocarbons on a carbon
dioxide equivalent basis. We have no emissions of sulphur hexafluoride
or nitrogen trioxide.
Further details on our methodology for reporting and the criteria used can
be found within our basis of reporting, available at www.rolls-royce.com
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Greenhouse gas emissions
Foreign exchange
Foreign exchange rate movements influence the reported income
statement, the cash flow and closing net cash/(debt) balance. The
average and spot rates for the principal trading currencies of the Group
are shown in the table below:
2024 2023 Change
USD per GBP Year-end spot rate 1.25 1.27 -2%
Average spot rate 1.28 1�24 +3%
EUR per GBP Year-end spot rate 1.21 1�15 +5%
Average spot rate 1.18 1�15 +3%
The Group’s global corporate income tax contribution
The Group’s total corporation tax payments in 2024 were £380m. Around
95% of this was paid in the US, Germany, UK, Singapore and Canada.
The balance of tax payments were made in around 40 other countries.
In common with most multinational groups, the total profits for
corporate income tax purposes are not the same as the consolidated
profit before taxation reported on page 114.
The main reasons for this are:
(i)
the consolidated income statement is prepared under IFRS, whereas
the corporate income tax profits and losses for each company are
determined by local tax accounting rules;
(ii) accounting rules require certain income and costs relating to our
commercial activities to be eliminated from, or added to, the
aggregate of all the profits of the Group companies when
preparing the consolidated income statement (consolidation
adjustments); and
(iii)
specific tax rules including exemptions or incentives as determined
by the tax laws in each country.
In most cases, paragraphs (i) and (ii) above are only a matter of timing
and therefore tax will be paid in an earlier or later year. The impact of
paragraph (iii) above will often be permanent, depending on the
relevant tax law. Further information on the tax position of the Group
can be found as follows:
—
Audit Committee Report (page 82) – updates given to the Audit
Committee during the year;
— note 1 to the Consolidated Financial Statements (page 130) – details
of key areas of uncertainty and accounting policies for tax;
— note 5 to the Consolidated Financial Statements (pages 145 to 148);
and
— Details of the tax balances in the Consolidated Financial Statements
together with a tax reconciliation. This explains the main drivers of
the tax rate and the impact of our assessment on the recovery of UK
deferred tax assets.
Information on the approach to managing the Group’s tax affairs can
be found at www.rolls-royce.com
Investments and capital expenditure
The Group subjects all major investments and capital expenditure to a
rigorous examination of risks and future cash flows. Investments and
capital expenditure must align to the Group’s strategy and create
shareholder value. All major investments, including the launch of major
programmes, require Board approval.
The Group has a portfolio of projects at different stages of their
lifecycles. All of our major investments and projects are assessed using
a range of financial metrics, including discounted cash flow and return
on investment.
Financial risk management
The Board has established a structured approach to financial risk
management. The Financial risk committee (Frc) is accountable for
managing, reporting and mitigating the Group’s financial risks and
exposures. These risks include the Group’s principal counterparty,
currency, interest rate, commodity price, liquidity and credit rating
risks outlined in more depth in note 20. The Frc is chaired by the Chief
Financial Officer. The Group has a comprehensive financial risk policy
that advocates the use of financial instruments to manage and hedge
business operations risks that arise from movements in financial,
commodities, credit or money markets. The Group’s policy is not to
engage in speculative financial transactions. The Frc sits quarterly to
review and assess the key risks and agree any mitigating actions required.
Capital structure
£m 2024 2023
Total equity (881) (3,629)
Cash flow hedges (13) (12)
Group capital (894) (3,641)
Net cash/(debt) 475 (1,952)
Operations are funded through various shareholders’ funds, bank
borrowings, bonds and notes. The capital structure of the Group reflects
the judgement of the Board as to the appropriate balance of funding
required. Funding is secured by the Group’s continued access to the
global debt markets. Borrowings are funded in various currencies using
derivatives where appropriate to achieve a required currency and
interest rate profile. The Board’s objective is to retain sufficient
financial investments and undrawn facilities to ensure that the Group
can both meet its medium-term operational commitments and cope
with unforeseen obligations and opportunities.
The Group holds cash and short-term investments which, together with
the undrawn committed facilities, enable it to manage its liquidity risk.
213
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
Other financial information
During the year to 31 December 2024, the Group repaid a €550m bond
at its maturity and cancelled its £1bn undrawn UKEF-supported loan
facility, which was due to mature in 2027. This facility had remained
undrawn during the year. In addition, the Group extended its undrawn
£2.5bn revolving credit facility by one year to November 2027, with the
Group having the option to exercise a further one-year extension option,
subject to bank agreement at the time of exercise.
At the year end, the Group retained aggregate liquidity of £8.1bn,
including cash and cash equivalents of £5.6bn and undrawn borrowing
facilities of £2.5bn.
The Group has one material debt maturity in October 2025. The
maturity profile of the borrowing facilities is regularly reviewed to
ensure that refinancing levels are manageable in the context of the
business and market conditions. There are no rating triggers in any
borrowing facility that would require the facility to be accelerated or
repaid due to an adverse movement in the Group’s credit rating. The
Group conducts some of its business through a number of joint ventures.
A major proportion of the debt of these joint ventures is secured on
the assets of the respective companies and is non-recourse to the
Group. This debt is further outlined in note 17.
Credit rating
£m Rating Outlook
Moody’s Investors Service Baa3 Positive
Standard & Poor’s BBB Positive
Fitch BBB- Positive
The Group subscribes to Moody’s, Standard & Poor’s and Fitch for
independent long-term credit ratings, with the ratings in the table
above being applicable at the date of this report.
Accounting
The Consolidated Financial Statements have been prepared in
accordance with IFRS, as adopted by the UK.
New disclosure requirements resulting from amendments to IAS 7
Statement of Cash Flows and IFRS 7 Financial Instruments relating to
Supplier Finance Arrangements (SFAs) were effective from 1 January
2024. The objective of the new amendments is to provide enhanced
information about SFAs that enables investors to assess the effects on
an entity’s liabilities, cash flows and its exposure to liquidity risk. The
Group’s suppliers have access to a supply chain financing (SCF)
programme that is considered to be within the scope of the Standard’s
SFA definition. The new prescriptive disclosure requirements have
necessitated some additional information being disclosed on page 164
in relation to the value of trade payables that were within the scope of
the Group offered SCF scheme. This has been presented alongside the
value of received payments which suppliers had drawn, this being
information which the Group has previously disclosed in its Annual
Reports.
There are no other new standards or interpretations issued by the IASB
that had a significant impact on the Consolidated Financial Statements.
The Group does not consider that any standards, amendments or
interpretations issued by the IASB, but not yet applicable will have a
significant impact on the Consolidated Financial Statements in 2024.
214
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER FINANCIAL INFORMATION
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. 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. All comparative periods relate to 31 December 2023.
Underlying results
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. Further
detail can be found in note 2.
2024
£m
2023
£m
Revenue
Statutory revenue 18,909 16,486
Derivative and FX adjustments (1,061) (1,077)
Underlying revenue 17,848 15,409
Gross profit
Statutory gross profit 4,221 3,620
Derivative and FX adjustments (186) (461)
Programme exceptional (credits) – (21)
Exceptional transformation and restructuring charges 147 55
Acquisition accounting and M&A 43 46
Impairment reversal (2) (8)
Civil Aerospace programme asset impairment reversal (132) –
Underlying gross profit 4,091 3,231
Commercial and administrative costs
Statutory commercial and administrative (C&A) costs (1,284) (1,110)
Derivative and FX adjustments – 1
Exceptional transformation and restructuring charges 70 47
Other underlying adjustments 17 (2)
Underlying C&A costs (1,197) (1,064)
Research and development costs
Statutory research and development (R&D) costs (203) (739)
Derivative and FX adjustments (8) (4)
Exceptional transformation and restructuring charges 17 –
Acquisition accounting 2 4
Civil Aerospace programme asset impairment reversal (413) –
Underlying R&D costs (605) (739)
Operating profit
Statutory operating profit 2,906 1,944
Derivative and FX adjustments (191) (475)
Programme exceptional credits – (21)
Exceptional transformation and restructuring charges 234 102
Acquisition accounting and M&A 45 50
Civil Aerospace programme asset impairment reversal (545) –
Impairment reversal (2) (8)
Other underlying adjustments 17 (2)
Underlying operating profit 2,464 1,590
Underlying operating margin 13.8% 10.3%
215
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
Reconciliation of alternative performance measures
2024
pence
2023
pence
Basic EPS
Statutory basic EPS 30.05 28�85
Effect of underlying adjustments to profit/(loss) before tax 0.70 (13.94)
Related tax effects (6.34) (1.16)
Adjustment for net recognition of deferred tax assets
1
(4.12) –
Basic underlying EPS 20.29 13.75
1 Underlying profit attributable to ordinary shareholders has been adjusted for the one-off non-cash impact of £346m related to the net recognition of deferred tax assets on UK tax losses,
see note 5, page 148 for further details
Organic change
Organic change is the measure of change at constant translational currency applying full year 2023 average rates to 2024. The movement in
underlying change to organic change is reconciled below.
All amounts below are shown on an underlying basis and reconciled to the nearest statutory measure above.
Total Group income statement
2024
£m
2023
£m
Change
£m
FX
£m
Organic
change
£m
Organic
change
%
Underlying revenue 17,848 15,409 2,439 (245) 2,684 17
Underlying gross profit 4,091 3,231 860 (67) 927 29
Underlying operating profit 2,464 1,590 874 (35) 909 57
Net financing costs (171) (328) 157 (1) 158 (48)
Underlying profit before taxation 2,293 1,262 1,031 (36) 1,067 85
Taxation (282) (120) (162) 10 (172) 143
Underlying profit for the year 2,011 1,142 869 (26) 895 78
Civil Aerospace
2024
£m
2023
£m
Change
£m
FX
£m
Organic
change
£m
Organic
change
%
Underlying revenue 9,040 7,348 1,692 (61) 1,753 24
Underlying OE revenue 3,105 2,703 402 (29) 431 16
Underlying services revenue 5,935 4,645 1,290 (32) 1,322 28
Underlying gross profit 1,990 1,394 596 (21) 617 44
Commercial and administrative costs (396) (354) (42) 2 (44) 12
Research and development costs (252) (343) 91 3 88 (26)
Joint ventures and associates 163 153 10 (1) 11 7
Underlying operating profit 1,505 850 655 (17) 672 79
Defence
2024
£m
2023
£m
Change
£m
FX
£m
Organic
change
£m
Organic
change
%
Underlying revenue 4,522 4,077 445 (66) 511 13
Underlying OE revenue 1,943 1,766 177 (24) 201 11
Underlying services revenue 2,579 2,311 268 (42) 310 13
Underlying gross profit 908 804 104 (12) 116 14
Commercial and administrative costs (212) (173) (39) 3 (42) 24
Research and development costs (55) (72) 17 – 17 (24)
Joint ventures and associates 3 3 – – – –
Underlying operating profit 644 562 82 (9) 91 16
216
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES
Power Systems
2024
£m
2023
£m
Change
£m
FX
£m
Organic
change
£m
Organic
change
%
Underlying revenue 4,271 3,968 303 (118) 421 11
Underlying OE revenue 2,942 2,661 281 (81) 362 14
Underlying services revenue 1,329 1,307 22 (37) 59 5
Underlying gross profit 1,199 1,050 149 (33) 182 17
Commercial and administrative costs (483) (456) (27) 12 (39) 9
Research and development costs (165) (187) 22 5 17 (9)
Joint ventures and associates 9 6 3 (1) 4 67
Underlying operating profit 560 413 147 (17) 164 40
New Markets
2024
£m
2023
£m
Change
£m
FX
£m
Organic
change
£m
Organic
change
%
Underlying revenue 3 4 (1) – (1) (25)
Underlying OE revenue 3 2 1 – 1 50
Underlying services revenue – 2 (2) – (2) (100)
Underlying gross (loss)/profit (4) 1 (5) – (5) (500)
Commercial and administrative costs (40) (24) (16) 1 (17) 71
Research and development costs (133) (137) 4 1 3 (2)
Underlying operating loss (177) (160) (17) 2 (19) 12
Trading cash flow
Trading cash flow is defined as free cash flow (as defined on page 218) 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.
2024
£m
2023
£m
Civil Aerospace 2,030 626
Defence 591 511
Power Systems 452 461
New Markets (181) (63)
Total reportable segments trading cash flow 2,892 1,535
Other businesses 5 5
Corporate and Inter-segment (60) (57)
Trading cash flow 2,837 1,483
Underlying operating profit charge exceeded by in excess of contributions to defined benefit schemes (31) (26)
Tax
1
(381) (172)
Free cash flow 2,425 1,285
1 See page 117 for tax paid in the statutory cash flow statement
217
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES
Free cash flow
Free cash flow is a measure of the financial performance of the businesses’ cash flows which is consistent with the way in which performance is
communicated to the Board. Free cash flow is defined as cash flows from operating activities including capital expenditure and movements in
investments, capital elements of lease payments, interest paid, amounts paid relating to the settlement of excess derivatives and excluding
amounts spent or received on activity related to business acquisitions or disposals and other material exceptional or one-off cash flows.
Free cash flow from cash flows from operating activities
2024
£m
2023
£m
Statutory cash flows from operating activities
3,782 2,485
Capital expenditure (876) (699)
Investment (including investment from NCI and movement in joint ventures, associates and other investments) 16 69
Capital element of lease payments (299) (291)
Interest paid (298) (333)
Exceptional transformation and restructuring costs 104 69
M&A costs 1 2
Other (5) (17)
Free cash flow 2,425 1,285
Group R&D expenditure
In year gross cash expenditure on R&D excludes contributions and fees, amortisation and impairment of capitalised costs and amounts
capitalised during the year. For further detail, see note 3.
Gross capital expenditure
Gross capital expenditure during the year excluding capital expenditure from discontinued operations. All proposed investments are subject to
rigorous review to ensure that they are consistent with forecast activity and provide value for money. The Group measures annual capital
expenditure as the cash purchases of PPE acquired during the year.
2024
£m
2023
£m
Purchases of PPE (cash flow statement) 519 429
218
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES
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
Total value of firm orders placed by customers for delivery of products and services where there is no right to cancel. Further details are included
in note 2 of the Consolidated Financial Statements.
Adjusted return on capital (abbreviated to return on capital)
Return on capital is defined as net operating profit after tax (NOPAT) as a percentage of average invested capital. NOPAT is defined as
underlying net profit excluding net finance costs and the tax shield on net finance costs. Invested capital is defined as current and non-current
assets less current liabilities. It excludes pension assets, cash and cash equivalents, and borrowings and lease liabilities. Return on capital assesses
the efficiency in allocating capital to profitable investments.
2024
£m
2023
£m
Underlying operating profit 2,464 1,590
Less: taxation
1
(649) (151)
Underlying operating profit (post-taxation) 1,815 1,439
Total assets 35,686 31,512
Less: post-retirement scheme surpluses (790) (782)
Less: cash and cash equivalents (5,575) (3,784)
Current liabilities (16,860) (14,926)
Liabilities held for sale
(100) (55)
Less: borrowings and lease liabilities 1,097 809
Invested capital (closing) 13,458 12,774
Invested capital (average) 13,116 12,722
Return on capital 13.8% 11.3%
1 Excluding underlying taxation on underlying finance income/(costs) of £21m (2023: £31m) and adjusted for the one-off non-cash impact of £346m related to the net recognition of deferred
tax assets on UK tax losses, see note 5, page 148 for further details
Total underlying cash costs as a proportion of underlying gross margin (abbreviated to TCC/GM)
Total underlying cash costs during the year (represented by underlying research and development (R&D) expenditure and underlying
commercial and administrative (C&A) costs) as a proportion of underlying gross profit. This measure provides an indicator of total cash costs
relative to gross profit. A reduction in total cash costs relative to gross profit indicates how effective the business is at managing and/or
reducing its costs.
2024
£m
2023
£m
Underlying R&D expenditure
1
745 836
Underlying C&A 1,197 1,064
Total cash costs 1,942 1,900
Underlying gross profit 4,091 3,231
Total cash costs as a proportion of underlying gross profit 0.47 0�59
1 Excludes £30m (2023: £6m) impact of acquisition accounting, exceptional transformation costs, derivatives and FX
219
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES
Board of Directors
The Directors of the Company who were in office during the year and
up to the date of signing the financial statements were Dame Anita
Frew, Tufan Erginbilgic, Helen McCabe, Birgit Behrendt, Stuart Bradie,
Paulo Cesar Silva, George Culmer, Lord Jitesh Gadhia, Beverly Goulet,
Nick Luff, Wendy Mars and Dame Angela Strank.
Directors’ indemnities
The Directors have the benefit of an indemnity provision contained in
the Articles. In addition, the Directors have been granted a qualifying
third-party indemnity provision which was in force throughout the
financial year and remains in force. Also, throughout the year, the
Company purchased and maintained directors’ and officers’ liability
insurance in respect of the Company and its subsidiaries for their
directors and officers.
Share price
During the year, the share price increased by 90% from 300p to 569p,
compared to a 34% increase in the FTSE aerospace and defence sector
and a 6% increase in the FTSE 100. The Company’s share price ranged
from 295p in January 2024 to 595p in December 2024.
Share capital
On 31 December 2024, the Company’s issued share capital comprised:
8,504,896,989 Ordinary shares 20p each
22,505,247,514 C shares 0�1p each
1 Special share £1
The ordinary shares are listed on the London Stock Exchange.
The Company has previously issued non-cumulative redeemable
preference shares (C shares) as an alternative to paying a cash dividend.
Further information on payments to shareholders is on page 223.
Share class rights
The full share class rights are set out in the Company’s Articles, which
are available at www.rolls-royce.com. The rights are summarised below.
Ordinary shares
Each member has one vote for each ordinary share held. Holders of
ordinary shares are entitled to: receive the Company’s Annual Report;
attend and speak at general meetings of the Company; appoint one or
more proxies or, if they are corporations, corporate representatives;
and exercise voting rights. Holders of ordinary shares may receive a
bonus issue of C shares or a dividend and on liquidation may share in
the assets of the Company.
C shares
C shares have limited voting rights and attract a preferential dividend,
paid on a twice-yearly basis. On a return of capital on a winding-up,
the holders of C shares shall be entitled, in priority to any payment to
the holders of ordinary shares, to the repayment of the nominal
capital paid-up or credited as paid-up on the C shares held by them,
together with a sum equal to the outstanding preferential dividend
which will have been accrued but not paid until the date of return of
capital. The holders of C shares are only entitled to attend, speak and
vote at a general meeting if a resolution to wind up the Company is to
be considered, in which case they may vote only on that resolution.
The Company may elect, at its own discretion (and whether or not with
the consent of the holders of C shares), to redeem all of the C shares
then in issue at their nominal value each together with any accrued but
unpaid C preferential dividend on such shares as at the day of
redemption, if at any time the Board determines that it would be in the
Company’s interests to do so.
Special share
Certain rights attach to the special rights non-voting share (special
share) issued to the UK Secretary of State for the Department of
Business and Trade (special shareholder). These rights are set out in
the Articles. Subject to the provisions of the Companies Act 2006 (the
Act), the Treasury Solicitor may redeem the Special Share at par value
at any time. The special share confers no rights to dividends but, in the
event of a winding-up, it shall be repaid at its nominal value in priority
to any other shares.
Accounting policies ������������������������������������������������������������������������������������ 122
Agreements for compensation for loss of office�������������������������������104
Authority to issue and purchase shares ����������������������������������������������� 221
Board of Directors ���������������������������������������������������������������������������������������� 68
Change of control ���������������������������������������������������������������������������������������� 221
Changes to the Articles of Association ������������������������������������������������ 221
Corporate governance statement ������������������������������������������������������������70
Directors’ conflicts of interest ��������������������������������������������������������������������81
Directors’ indemnities ������������������������������������������������������������������������������� 220
Directors’ service contracts and letters of appointment ���������������105
Directors’ share interests ���������������������������������������������������������� 104 and 110
Disclosure of information to auditors ���������������������������������������������������� 112
Engagement with employees �������������������������������������������������������������������� 64
Engagement with suppliers, customers and others
in a business relationship with the Company �������������������������������������� 64
Employment of disabled people ���������������������������������������������������������������48
Financial instruments and risk management ��������������������������������������165
Future developments ����������������������������������4 to 15, 18 to 31 and 32 to 45
Greenhouse gas emissions ������������������������������������������������������������������������212
Major shareholdings ����������������������������������������������������������������������������������� 221
Political donations ���������������������������������������������������������������������������������������222
Post-balance sheet events ������������������������������������������������������������������������ 137
Purchase of own shares ����������������������������������������������������������������������������� 221
Related party transactions �����������������������������������������������������������������������184
Research and development ���������������������������������������������������������������������� 144
Share capital and rights ���������������������������������������������������������������������������� 220
Shareholder distributions ������������������������������������������������������������������������ 223
Subsidiaries, joint ventures and associates ����������������������������������������� 192
Task force on climate-related financial disclosures �������������������������� 36
220
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Directors’ report
Certain provisions of the Articles (in particular those relating to the
foreign shareholding limit, disposals and the nationality of the
Company’s Directors) that relate to the rights attached to the special
share may only be altered with the consent of the special shareholder.
The special shareholder is not entitled to vote at any general meeting
or any other meeting of any class of shareholders.
Restrictions on transfer of shares and limitations on holdings
There are no restrictions on transfer or limitations on the holding of
the ordinary shares or C shares other than under the Articles (as
described here), under restrictions imposed by law or regulation (for
example, UK Market Abuse Regulations) or pursuant to the Company’s
inside information and share dealing policy. The Articles provide that
the Company should be and remain under UK control. As such, an
individual foreign shareholding limit is set at 15% of the aggregate votes
attaching to the share capital of all classes (taken as a whole) and
capable of being cast on a poll and to all other shares that the Directors
determine are to be included in the calculation of that holding. The
Special Share may only be issued to, held by and transferred to the
Special Shareholder or their successor or nominee.
Shareholder agreements and consent requirements
No disposal may be made to a non-Group member which, alone or when
aggregated with the same or a connected transaction, constitutes a
disposal of the whole or a material part of either the nuclear propulsion
business or the assets of the Group as a whole, without the consent of
the Special Shareholder.
Authority to issue shares
At the 2024 AGM, an ordinary resolution was passed authorising the
Directors to allot new ordinary shares up to a nominal value of £561,113,133
equivalent to one-third of the issued share capital of the Company as
at 21 February 2024. This resolution also authorised the Directors to
allot up to two-thirds of the total issued share capital of the Company,
although only in the case of a rights issue. A further special resolution
was passed to effect a disapplication of pre-emption rights for a
maximum of 5% of the issued share capital of the Company. These
authorities are valid until the 2025 AGM or 30 June 2025, whichever
is sooner. During the year, 88,200,000 ordinary shares were issued to
the Employee Benefit Trust to satisfy awards under the Company’s share
plans. The Directors propose to renew each of these authorities at the
2025 AGM to be held on 1 May 2025. The Board believes that these
authorities will allow the Company to retain flexibility to respond to
circumstances and opportunities as they arise.
Authority to purchase own shares
At the 2024 AGM, the Company was authorised by shareholders to
purchase up to 841,669,698 representing 10% of its issued ordinary
share capital�
The authority for the Company to purchase its own shares expires at
the conclusion of the 2025 AGM or 30 June 2025, whichever is sooner.
A resolution to renew the authority will be proposed at the 2025
meeting.
The Company did not purchase any of its own ordinary shares under
this authority during 2024.
Deadlines for exercising voting rights
Electronic and paper proxy appointments, together with voting
instructions, must be received by the Registrar not less than 48 hours
before a general meeting.
Voting rights for employee share plan shares
Shares are held in an employee benefit trust for the purpose of
satisfying awards made under the various employee share plans. For
shares held in a nominee capacity or if plan/trust rules provide the
participant with the right to vote in respect of specifically allocated
shares, the trustee votes in line with the participants’ instructions. For
shares that are not held absolutely on behalf of specific individuals, the
general policy of the trustees, in accordance with investor protection
guidelines, is to abstain from voting in respect of those shares.
Major shareholdings
At 31 December 2024, the following shareholders had notified an
interest in the issued ordinary share capital of the Company in
accordance with section 5.1.2 of the Disclosure and Transparency Rules.
No notifications have been received in the period 1 January to 27
February 2025.
Shareholder
Date of change
in interest
% of issued
ordinary
share capital
Blackrock, Inc. 18 December 2023 5�01
Bank of America Corporation 2 May 2024 2�56
Causeway Capital Management
LLC 29 September 2023 4�99
Harris Associates L.P. 16 November 2020 4�99
Massachusetts Financial
Services Company 28 March 2022 4�94
The Capital Group Companies,
Inc� 8 April 2024 5.07
Changes to the Articles of Association
The Articles may be amended or new articles may be adopted by a
special resolution of the Company’s shareholders, subject to the
provisions of the Act.
Change of control
Contracts and joint venture agreements
There are a number of contracts and joint venture agreements which
would allow the counterparties to terminate or alter those arrangements
in the event of a change of control of the Company. These arrangements
are commercially confidential and their disclosure could be seriously
prejudicial to the Company.
Borrowings and other financial instruments
The Group has several borrowing facilities provided by various banks.
These facilities generally include provisions which may require any
outstanding borrowings to be repaid or the alteration or termination
of the facility upon the occurrence of a change of control of the
Company. At 31 December 2024, these facilities were 44% drawn (2023:
36%).
The Group has entered into a series of financial instruments to hedge
its currency, interest rate and commodity exposures. These contracts
provide for termination or alteration in the event that a change of
control of the Company materially weakens the creditworthiness of the
Group�
221
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
DIRECTORS’ REPORT
Employee share plans
In the event of a change of control of the Company, the effect on the
employee share plans would be as follows:
—
Incentive Plan – deferred share awards will normally vest immediately,
and may be time pro-rated. The new controlling company might offer
an award in exchange instead (normally on substantially equivalent
terms to the existing award). Awards with performance conditions
would normally vest on the change of control subject to the
Remuneration Committee’s judgement of performance and may be
reduced pro rata to service in the vesting period.
—
ShareSave – options would become exercisable immediately and can
be exercised within six months following the change of control. The
new controlling company might offer an equivalent option in exchange
for cancellation of the existing option.
— SharePurchase Plan (SPP) – consideration received as shares would
be held within the SPP, if possible, otherwise the consideration would
be treated as a disposal from the SPP.
—
LTIP – awards would vest on the change of control, subject to the
Remuneration Committee’s judgement of performance and may be
reduced pro rata to service in the vesting period. Any applicable
holding period will cease in the event of a change of control.
—
Global Employee SharePurchase Plan (GESPP) – matching share
awards would vest on the date of the change of control; free share
awards would vest if and to the extent that the Remuneration
Committee decides, and rights to purchase investment shares
willlapse.
Political donations
The Company’s policy is that it does not, directly or through any
subsidiary, make what are commonly regarded as donations to any
political party. However, the Act defines political donations very broadly
and so it is possible that normal business activities, such as sponsorship,
subscriptions, payment of expenses, paid leave for employees fulfilling
certain public duties and support for bodies representing the business
community in policy review or reform, which might not be thought of
as political expenditure in the usual sense, could be captured. Activities
of this nature would not be thought of as political donations in the
Disclosures required under UK Listing Rule 6.6.6 as at 31 December 2024
Gender identity
Number of
Board
members
Percentage
of the
Board
Number of
senior positions
on the Board
Number in
executive
management
Percentage of
executive
management
Men 6 50% Chief Executive, SID 7 70%
Women 6 50% Chair, Chief Financial
Officer
3 30%
Other categories – – – – –
Not specified/prefer not to say – – – – –
Ethnic background
Number of
Board
members
Percentage
of the
Board
Number of
senior positions
on the Board
Number in
executive
management
Percentage of
executive
management
White British or other White (including
minority-white groups)
11 92% Chair, Chief Executive,
Chief Financial Officer,
SID
10 100%
Mixed/multiple ethnic groups – – – – –
Asian/Asian British 1 8% – – –
Black/African/Caribbean/Black British – – – – –
Other ethnic group, including Arab – – – – –
Not specified/prefer not to say – – – – –
ordinary sense of those words. The resolution to be proposed at the
2025 AGM, authorising political donations and expenditure, is to ensure
that the Group does not commit any technical breach of the Act.
During the year, expenses incurred by Rolls-Royce North America, Inc.
in providing administrative support for the Rolls-Royce North America
political action committee (PAC) was USD$61,886.50 (2023:
USD$60,584.71). PACs are a common feature of the US political system
and are governed by the Federal Election Campaign Act. The PAC is
independent of the Group and independent of any political party. The
PAC funds are contributed voluntarily by employees and the Group
cannot affect how they are applied, although under US law, the business
expenses are paid by the employee’s company. Such contributions do
not count towards the limits for political donations and expenditure for
which shareholder approval will be sought at the 2025 AGM to renew
the authority given at the 2024 AGM.
Disclosures in the Strategic Report
The Board has taken advantage of section 414C(11) of the Act to include
disclosures in the Strategic Report including:
— employee involvement;
— the employment of disabled people;
—
the future development, performance and position of the Group;
and
— research and development activities.
Information required by UK Listing Rule (UKLR) 6.6.1
There are no disclosures to be made under UKLR 6.6.1.
Management report
The Strategic Report and the Directors’ Report together are the
management report for the purposes of Rule 4.1.8R of the DTR.
By order of the Board
Claire-Marie O’Grady
Chief Governance Officer
27 February 2025
222
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
DIRECTORS’ REPORT
Managing your shareholding
Your shareholding is managed by Equiniti Limited (the Registrar). When
making contact with the Registrar, please quote your shareholder
reference number (SRN). This is an 11-digit number that can be found on
your share certificate or on any other shareholder correspondence. You
can manage your shareholding at www.shareview.co.uk, speak to the
Registrar on +44 (0)371 384 2637 (8.30am to 5.30pm, Monday to Friday)
or you can write to the Registrar at Equiniti Limited, Aspect House,
Spencer Road, Lancing, West Sussex BN99 6DA. If you hold your shares
in a share dealing account (sometimes referred to as a nominee account)
then you must contact your account provider with any questions about
your shareholding.
Payments to shareholders
As announced on 27 February 2025, the Group is recommencing
dividends and, subject to shareholder approval at the AGM to be held
on 1 May 2025, the Directors recommend a final cash dividend of 6 pence
per ordinary share for the year ended 31 December 2024, to be paid on
16 June 2025 to shareholders on the register on 22 April 2025. The total
dividend for the year is 6 pence per ordinary share (2023: nil). The
Trustees of the Rolls-Royce Employee Benefit Trust (the EBT) have waived
their right to receive dividends over their holding of 106,066,831 shares
as at 31 December 2024. The Company will be introducing a dividend
reinvestment programme, further details can be obtained from Equiniti
Limited.
The Company has previously made payments to shareholders by issuing
redeemable C shares of 0.1p each. No distributions in the form of C Shares
have been made since 2019. C shareholders wishing to redeem their
existing C shares must lodge instructions with the Registrar to arrive no
later than 5.00pm on 2 June 2025 (CREST holders must submit their
election in CREST by 2.55pm). For the avoidance of doubt, the C share
reinvestment programme is no longer available; C shares can only be
redeemed for cash. The payment of C Share redemption monies will be
made on 4 July 2025. Any entitlement to interest payments by C
shareholders will also be paid on 4 July 2025 in accordance with the
Company’s articles of association.
Share dealing
The Registrar offers ordinary shareholders an internet dealing service
at www.shareview.co.uk and a postal dealing service. Real-time dealing
is available during market hours, 8.00am to 4.30pm, Monday to Friday
excluding bank holidays. Orders can still be placed outside of market
hours. The fee for internet dealing is 1.5% of the transaction value,
subject to a minimum fee of £45. The fee for telephone dealing is 1.5%
of the transaction value, subject to a minimum fee of £60. The fee for
postal dealing is 1.9% of the transaction value, subject to a minimum fee
of £70. This service is only available to shareholders resident in certain
jurisdictions. Before you can trade you must register to use the service.
Other share dealing facilities are available, but you should always use a
firm regulated by the FCA (see register.fca.org.uk).
Your share certificate
Your share certificate is an important document. If you sell or transfer
your shares you must make sure that you have a valid share certificate
in the name of Rolls-Royce Holdings plc. If you place an instruction to
sell your shares and cannot provide a valid share certificate, the
transaction cannot be completed and you may be liable for any costs
incurred by the broker. If you are unable to find your share certificate,
please inform the Registrar immediately.
American Depositary Receipts (ADR)
ADR holders should contact the depositary, JP Morgan, by calling
+1(800) 990 1135 (toll free within the US) or +1(651) 453 2128 (outside the
US) or via www.adr.com/contact/jpmorgan
Warning to shareholders – investment scams
We are aware that some of our shareholders have received unsolicited
telephone calls or correspondence, offering to buy or sell their shares
at very favourable terms. The callers can be very persuasive and extremely
persistent and often have professional websites and telephone numbers
to support their activities. They will sometimes imply a connection to
Rolls-Royce and provide incorrect or misleading information. This type
of call should be treated as an investment scam – the safest thing to do
is hang up. Remember: if it sounds too good to be true, it probably is.
You should always check that any firm contacting you about potential
investment opportunities is properly authorised by the FCA. If you deal
with an unauthorised firm you will not be eligible for compensation under
the Financial Services Compensation Scheme. You can find out more
about protecting yourself from investment scams by visiting the FCA’s
website at www.fca.org.uk/scamsmart, or by calling the FCA’s consumer
helpline on 0800 111 6768 (overseas callers dial +44 207 066 1000).
If you have already paid money to share fraudsters, contact Action
Fraud immediately on 0300 123 2040, whose website is
www.actionfraud.police.uk
Visit Rolls-Royce online
Visit www.rolls-royce.com to find out more about the latest financial
results, the share price, payments to shareholders, the financial calendar
and shareholder services.
Communication preferences
You can sign up to receive the latest news updates to your phone or
email by visiting www.rolls-royce.com and registering for our alert service.
If you do not wish to receive a hard copy Annual Report in future, you
can do this online at www.shareview.co.uk
Annual general meeting (AGM)
The 2025 AGM will be held at 11.00am on 1 May 2025 as a hybrid meeting.
Full details are available on our website at www.rolls-royce.com
Analysis of ordinary shareholders at 31 December 2024
Type of holder
Number of
shareholders
% of total
shareholders
Number of
shares
% of
total shares
Individuals 149,908 98�64 169,785,298 2�00
Institutional and other investors 2,069 1�36 8,335,111,691 98�00
Total 151,977 100�00 8,504,896,989 100�00
Size of holding (number of ordinary shares)
1 – 150 47,168 31�04 4,099,548 0�05
151 – 500 53,682 35�32 14,338,642 0.17
501 – 10,000 47,152 31�03 88,287,272 1�04
10,001 – 100,000 3,055 2�01 75,463,803 0�89
100,001 – 1,000,000 533 0�35 185,636,122 2�18
1,000,001 and over 387 0�25 8,137,071,602 95.67
Total 151,977 100�00 8,504,896,989 100�00
223
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
OTHER INFORMATION
Shareholder information
AGM annual general meeting
AI artificial intelligence
APAC Asia-Pacific
APM alternative performance measure
Articles Articles of Association of Rolls-Royce Holdings plc
AUKUS Australia, United Kingdom, United States
BESS battery energy storage system
bps basis points
C&A commercial and administrative
CDP Carbon Disclosure Project
C shares non-cumulative redeemable preference shares
Our Code Global Code of Conduct
the Code 2018 UK Corporate Governance Code
the 2024 Code 2024 UK Corporate Governance Code
CMD capital markets day
Company Rolls-Royce Holdings plc
CRIP C Share Reinvestment Plan
D&I diversity and inclusion
DPAs deferred prosecution agreements
DTR the FCA’s Disclosure Guidance and Transparency
Rules
EFH engine flying hours
ELG Enterprise Leadership Group
EPS earnings per share
ESG environment, social, governance
ET&S engineering, technology and safety
EU European Union
EUR euro
FCA Financial Conduct Authority
FLRAA Future Long Range Assault Aircraft
FPVL fair value recognised in the income statement as a
profit or loss
FRC Financial Reporting Council
FTE full time equivalent
FVOCI fair value recognised through other comprehensive
income
FX foreign exchange
GBP Great British pound or pound sterling
GCAP Global Combat Air Programme
GDA generic design assessment
GDP gross domestic product
GESPP Global Employee Share Purchase Plan
GHG greenhouse gas
Group Rolls-Royce Holdings plc and its subsidiaries
GW gigawatt
HPT high pressure turbine
HSE health, safety and environment
HVO hydrotreated vegetable oil
IASB International Accounting Standards Board
ICAO International Civil Aviation Organization
IFRS International Financial Reporting Standards
ISS Institutional Shareholder Services group of
companies
KPIs key performance indicators
ktCO
2
e kilotonnes of carbon dioxide equivalent
kW kilowatts
LIBOR London inter-bank offered rate
LTIP long-term incentive plan
LTSA long-term service agreement
M&A mergers and acquisitions
MoU memorandum of understanding
MRO maintenance repair and overhaul
MtCO
2
e million tonnes of carbon dioxide equivalent
MWh megawatt-hour
NCI non-controlling interest
NED Non-Executive Director
net zero
company
net zero carbon emissions from our operations and
facilities and our products are compatible with net
zero operations by 2050
NOPAT net operating profit after tax
OCI other comprehensive income
OE original equipment
OECD Organisation for Economic Co-operation and
Development
P&L profit and loss
PBT profit before tax
PPE property, plant and equipment
R&D research and development
Registrar Equiniti Limited
RMS risk management system
RRSAs risk and revenue sharing arrangements
SAF sustainable aviation fuel
SBTs Science-Based Targets
Scope 1 + 2
emissions
Group Scope 1 + 2 greenhouse gas emissions
SETT Safety, Energy Transition & Tech Committee
SID Senior Independent Director
SMRs small modular reactors
SPP SharePurchase Plan
STEM science, technology, engineering and mathematics
TCC total cash costs
TCC/GM total underlying cash costs as a proportion of
underlying gross margin
TCFD Task Force on Climate-related Financial Disclosures
TRI total reportable injuries
TSR total shareholder return
UKEF UK Export Finance
UNSDG United Nations Sustainable Development Goals
USD/US$ United States dollar
Trade marks
The following trade marks which appear throughout this Annual Report are
trade marks registered and owned by companies within the Rolls-Royce Group:
CorporateCare
®
mtu
®
Pearl
®
TotalCare
®
Trent
®
UltraFan
®
224
ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
Glossary
Credits
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ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 2024
© Rolls-Royce plc 2025
Rolls-Royce Holdings plc
Registered office:
Kings Place, 90 York Way,
London N1 9FX
www.rolls-royce.com
Company number: 7524813