COMPANY NUMBER 01003142
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2024
BLANK PAGE
CONTENTS
COMPANY INFORMATION 1
STRATEGIC REPORT
GROUP AT A GLANCE 2
CHIEF EXECUTIVE’S REVIEW 4
OUR PURPOSE, VISION AND BEHAVIOURS 8
STRATEGY 9
- EXTERNAL ENVIRONMENT 11
BUSINESS MODEL 12
KEY PERFORMANCE INDICATORS 14
FINANCIAL REVIEW 17
BUSINESS REVIEW 22
- CIVIL AEROSPACE 22
- DEFENCE 25
- POWER SYSTEMS 27
- NEW MARKETS 29
PRINCIPAL RISKS 30
GOING CONCERN STATEMENT 40
VIABILITY STATEMENT 41
SECTION 172 AND STAKEHOLDER ENGAGEMENT 43
DIRECTORS’ REPORT
DIRECTORS 46
DIRECTORS’ INDEMNITIES 46
DIVIDENDS 46
CORPORATE GOVERNANCE 46
EMPLOYMENT OF DISABLED PERSONS 48
EMPLOYEE ENGAGEMENT 48
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 48
POST BALANCE SHEET EVENTS 48
RELATED PARTY TRANSACTIONS 48
DISCLOSURES IN THE STRATEGIC REPORT 48
DISCLOSURES IN THE ROLLS-ROYCE HOLDINGS PLC ANNUAL REPORT 48
MANAGEMENT REPORT 48
RESPONSIBILITY STATEMENTS 49
FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS 50
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 58
COMPANY FINANCIAL STATEMENTS 115
NOTES TO THE COMPANY FINANCIAL STATEMENTS 117
SUBSIDIARIES 144
JOINT VENTURES AND ASSOCIATES 148
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF ROLLS-ROYCE PLC 150
OTHER FINANCIAL INFORMATION 159
ALTERNATIVE PERFORMANCE MEASURES 161
GLOSSARY 165
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 161 to 164. 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.
Company Information Rolls-Royce plc Annual Report 2024
1
COMPANY INFORMATION
Registered office Kings Place
Independent Auditors PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Embankment Place
London
WC2N 6RH
Strategic Report Rolls-Royce plc Annual Report 2024
2
STRATEGIC REPORT
The Directors present their Strategic Report on the Rolls-Royce plc Group (the Group), together with the audited Financial Statements for the
year ended 31 December 2024. Rolls-Royce plc (the Company) is, indirectly, a wholly-owned subsidiary of Rolls-Royce Holdings plc (RRH).
Rolls-Royce plc is a public company limited by shares and incorporated under the Companies Act 2006. It holds the Group’s listed debt facilities
and is one of the main trading companies of the Group.
Group at a glance
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
£2,423m
2023: £1,286m
£3,780m
2023: £2,486m
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
NET CASH/(DEBT) LIQUIDITY
2
£2,293m
2023: £1,262m
£2,234m
2023: £2,427m
£474m
2023: £(1,952)m
£8.1bn
2023: £7.2bn
ORDER BACKLOG
3
GROSS R&D EXPENDITURE
1, 4
COUNTRIES WITH ROLLS-
ROYCE PRESENCE
PEOPLE (MONTHLY
AVERAGE)
5
£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 161 to 164
2
Liquidity is defined as cash and cash equivalents plus any undrawn facilities, as listed on page 40
3
See note 2 on page 75
4
See note 3 on page 78 for a reconciliation of gross R&D expenditure to total R&D expenditure
5
See note 7 on page 83
See note 2 on page 73 for a reconciliation between underlying and statutory results.
Strategic Report Rolls-Royce plc Annual Report 2024
3
Group at a glance continued
OUR DIVISIONS IN 2024
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 22 for the Civil
Aerospace divisional review
See page 25 for the Defence
divisional review
See page 27 for the Power
Systems divisional review
See page 29 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, a decision was taken to exit the electrical business, and in September 2024, we announced the closure of our advanced air mobility
activities
Strategic Report Rolls-Royce plc Annual Report 2024
4
Chief Executive’s review
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%; 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.
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.
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 8. 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 16). 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.
Strategic Report Rolls-Royce plc Annual Report 2024
5
Chief Executive’s review continued
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.
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.
Strategic Report Rolls-Royce plc Annual Report 2024
6
Chief Executive’s review continued
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.
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.
Strategic Report Rolls-Royce plc Annual Report 2024
7
Chief Executive’s review continued
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.
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 AE 3007N engines 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
Strategic Report Rolls-Royce plc Annual Report 2024
8
Our purpose, vision and 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.
For more information, see the Chief Executive’s review on pages 4 to 7.
For more information, see people and culture on pages 46 to 50 of the RRH Annual Report 2024.
Strategic Report Rolls-Royce plc Annual Report 2024
9
Strategy
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.
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 19).
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.
Strategic Report Rolls-Royce plc Annual Report 2024
10
Strategy continued
Strategic Report Rolls-Royce plc Annual Report 2024
11
Strategy continued
External environment
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.
Strategic Report Rolls-Royce plc Annual Report 2024
12
Business Model
Strategic Report Rolls-Royce plc Annual Report 2024
13
Business Model continued
Read more about our strategy on pages 9 to 11.
Read more about our KPIs on pages 14 to 16.
Read more about our principal risks on pages 30 to 39.
Strategic Report Rolls-Royce plc Annual Report 2024
14
Key Performance Indicators
Financial Performance Indicators
1
Order Backlog (£bn)
HOW WE DEFINE IT
WHY IT IS IMPORTANT
LINK TO REMUNERATION
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 75 for more
information.
Order backlog provides visibility
of future business activity.
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)
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 74 for more information.
Underlying revenue provides a
measure of business growth and
activity.
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)
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 72 for more
information.
Underlying operating profit
indicates how the effect of
growing revenue and control of
our costs delivers value for our
shareholders.
Profit is a key financial
performance measure for our
annual Incentive Plan.
Underlying operating margin
(%)
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.
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.
Profit is a key financial
performance measure for our
annual Incentive Plan and LTIP.
Free cash flow from continuing
operations (£m)
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 27
on page
114
.
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.
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 161 to 164.
Strategic Report Rolls-Royce plc Annual Report 2024
15
Key Performance Indicators continued
Financial Performance Indicators continued
TCC/GM (ratio)
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.
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.
Profit is a key financial
performance measure for our
annual Incentive Plan.
Gross R&D expenditure (£m)
In-year gross cash expenditure
on R&D excludes contributions
and fees, amortisation and
impairment of capitalised costs
and amounts capitalised during
the year.
This measure demonstrates the
balance between long-term
strategic investments and
delivering short-term
shareholder returns.
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)
In-year gross cash expenditure
on capital excluding capital
expenditure from discontinued
operations.
This measure demonstrates the
balance between long-term
strategic investments and
delivering short-term
shareholder returns.
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.
A reconciliation from the alternative performance measure to its statutory equivalent can be found on pages 161 to 164.
Strategic Report Rolls-Royce plc Annual Report 2024
16
Key Performance Indicators continued
Non-financial Performance Indicators
Safety index (%)
HOW WE DEFINE IT
WHY IT IS IMPORTANT
LINK
TO REMUNERATION
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 pages 46 to 47 in the RRH
Annual Report 2024 for more
information
.
The measure is strongly aligned
to our strategy of safety being
the number one priority with an
emphasis on proactive measures.
This metric accounts for 2.5% of
the annual Incentive Plan.
Total reportable injuries rate
This is a measure of total
reportable injuries rate per 100
employees.
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.
This metric accounts for 2.5% of
the annual Incentive Plan.
Employee engagement (%)
3
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.
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.
This metric accounts for 5% of
the annual Incentive Plan.
Sustainability
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.
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.
This metric will account for 10%
of the LTIP for awards granted
from 2025, with performance
measured against three-year
cumulative targets.
3
External assurance over the employee engagement score is provided by Bureau Veritas
For more information on our strategic framework, see page 9.
Strategic Report Rolls-Royce plc Annual Report 2024
17
Financial review
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, four key priorities were set out 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 and strengthen our balance sheet.
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.
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% and free
cash flow by £1.9bn to £2.4bn.
— 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.
Strategic Report Rolls-Royce plc Annual Report 2024
18
Financial review continued
— 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.
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.
— 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
Strategic Report Rolls-Royce plc Annual Report 2024
19
Financial review continued
Group Mid-Term Targets
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 4 to 7.
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
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
82
for further details)
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.
Strategic Report Rolls-Royce plc Annual Report 2024
20
Financial review continued
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.
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
434 (271) − 115 278 (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
3,780 (24) − 106 3,862 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
2,423 − − − 2,423 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.
Strategic Report Rolls-Royce plc Annual Report 2024
21
Financial review continued
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
(1,393) (1,165) (228)
Provisions
(1,994)
(2,029)
35
Net cash/(debt)
2
47
4
(1,952)
2,42
6
Net financial assets and liabilities
2
(1,957) (2,037) 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
(521) (3,269) 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 £474m 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.
Strategic Report Rolls-Royce plc Annual Report 2024
22
Business review
Our divisions
CIVIL AEROSPACE
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.
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.
Strategic Report Rolls-Royce plc Annual Report 2024
23
Business review continued
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
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 proportion 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.
Strategic Report Rolls-Royce plc Annual Report 2024
24
Business review continued
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 both 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.
Strategic Report Rolls-Royce plc Annual Report 2024
25
Business review continued
DEFENCE
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.
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
Strategic Report Rolls-Royce plc Annual Report 2024
26
Business review continued
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.
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.
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%
Strategic Report Rolls-Royce plc Annual Report 2024
27
Business review continued
POWER SYSTEMS
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.
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
Strategic Report Rolls-Royce plc Annual Report 2024
28
Business review continued
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.
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.
Strategic Report Rolls-Royce plc Annual Report 2024
29
Business review continued
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.
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.
Strategic Report Rolls-Royce plc Annual Report 2024
30
Principal risks
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 controls 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 RRH 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 RRH 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 30 to 39 for a detailed list
of these reviews.
2. 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. The Group’s internal financial controls (at the RRH 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 31 for more on progress in 2024 and future risk improvement plans.
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31
Principal risks continued
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 RRH 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 RRH Board oversight outlined on pages 74 to 75 of
the RRH Annual Report 2024, 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 12
and
13
).
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
section
from pages
30
to
39
).
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 RRH Board and its Committees and the Executive Team) as needed depending on the level of the risk, for
support, challeng
e 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 of the RRH Annual Report 2024 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.
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
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.
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 risk management framework as described above; or
- add the emerging risks to our watch list for investigation and monitoring.
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32
Principal risks continued
The RRH 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 below.
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 RRH Board or a RRH 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 section, starting on page 30 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 RRH Board and
its Committees.
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33
Principal risks continued
Principal Risks – Pillars
Safety (risk level: decreased)
Principal risk description
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
Controls and mitigating actions
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
People:
- Safety case interventions
- HSE audit team
Product:
- Product safety assurance team
- Technical product lifecycle audits
- Product safety board
Oversight forum(s)
- RRH Safety, Energy Transition & Tech Committee
- Executive Team
Business model
- 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, putting safety first is one of our core
behaviours (see page 8) and the first priority for all our colleagues. We continue to prioritise action plans to improve people and product safety.
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34
Principal risks continued
Compliance (risk level: decreased)
Principal risk description
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; antibribery 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.
Controls and mitigating actions
- 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
- Compliance teams
- Financial controls team
Oversight forum(s)
- RRH Audit Committee
- RRH Board
- RRH Nominations, Culture & Governance Committee
- Executive audit committee
Business model
- 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.
Strategy (risk level: static)
Principal risk description
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.
Controls and mitigating actions
- 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
- Group Strategy team
- Challenge from external advisers
Oversight forum(s)
- RRH Board
- Executive Team
- Investment committee
Business model
- Our role in society
- Our business model drivers
- Our uniqueness
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35
Principal risks continued
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 36.
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).
Execution (risk level: static)
Principal risk description
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.
Controls and mitigating actions
- 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
- Executive Team monitoring of execution
Oversight forum(s)
- RRH Board
- Executive Team
- Investment committee
Business model
- 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 17 to 21), with a new operating model being implemented to deliver our strategy.
Business interruption (risk level: static)
Principal risk description
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.
Controls and mitigating actions
- 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
- Investment reviews
- Supplier strategy and sourcing reviews
- Group security and resilience team
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36
Principal risks continued
Oversight forum(s)
- RRH Audit Committee
- Executive audit committee
Business model
- 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 11.
Principal Risks - Drivers
Energy transition (risk level: static)
Principal risk description
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.
Controls and mitigating actions
- 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
- Strategy reviews
- Technology reviews
- Investment reviews
- Group sustainability team
- Climate steering committee
Oversight forum(s)
- RRH Audit Committee
- RRH Board
- RRH Safety, Energy Transition & Tech Committee
- Energy transition & technology committee
Business model
- 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 mega trend, and the first phase of our sustainability strategy review took
place in 2024, focusing on energy transition (see pages 34 and 35 of the RRH Annual Report 2024).
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.
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37
Principal risks continued
Information & data (including cyber) (risk level: decreased)
Principal risk description
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.
Controls and mitigating actions
- 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
- Group cyber security team
- Group security and resilience team
Oversight forum(s)
- RRH Audit Committee
- RRH Safety, Energy Transition & Tech Committee
- Executive audit committee
Business model
- 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.
Market & financial shock (risk level: decreased)
Principal risk description
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.
Controls and mitigating actions
- 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
- Five-year and strategic planning processes
- Strategy reviews
Oversight forum(s)
- RRH Audit Committee
- RRH Board
- Financial and operating drivers review
Business model
- Our business model drivers
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38
Principal risks continued
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 (risk level: static)
Principal risk description
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 impact our strategy, execution, resilience, safety and compliance.
Controls and mitigating actions
- 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
- Strategy reviews
- Technology reviews
- Supplier sourcing teams
- Government relations teams
- Country Councils
Oversight forum(s)
- RRH Board
- Executive Team
Business model
- 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
11. 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.
Talent & capability (risk level: static)
Principal risk description
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.
Controls and mitigating actions
- 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
- People leadership team
- Leaders across Rolls-Royce
- Employee opinion survey
Oversight forum(s)
- RRH Nominations, Culture & Governance Committee
- People Committee
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39
Principal risks continued
Business model
- 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 of the RRH Annual Report 2024.
Technology (risk level: decreased)
Principal risk description
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.
Controls and mitigating actions
- 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
- Strategy reviews
- Investment reviews
- Technology reviews
Oversight forum(s)
- RRH Safety, Energy Transition & Tech Committee
- Energy transition & technology committee
Business model
- 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 mega trend (see page 11) 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 11 for more on how we are embedding AI and digital tools throughout our business.
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40
Going concern statement
Overview
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 30 to 39, 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 45.
The Financial Review on pages 17 to 21 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.
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 of the RRH Annual Report 2024.
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 RCF 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.
Strategic Report Rolls-Royce plc Annual Report 2024
41
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 30 to 39). 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 42.
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 Directors confirm
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. 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.
Strategic Report Rolls-Royce plc Annual Report 2024
42
Viability statement continued
Strategic Report Rolls-Royce plc Annual Report 2024
43
Section 172 and stakeholder engagement
Section 172 statement
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.
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.
During 2024, the Company focused 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
9
to
10
in the Strategic report.
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 8.
Additionally, at the 2024 RRH 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 RRH shares (or cash equivalent where share
allotment was not permitted). Further information on the GESPP can be found on page 48 of the RRH Annual Report
2024.
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 and support our
Executive Team who work collaboratively with our suppliers and partners to continue to improve operational
performance. During 2024, various RRH Board and Executive Team members met with several of our key suppliers
and customers. Further information can be found on
page
4
4
of our Stakehol
der 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 RRH Board approved our refreshed sustainability
strategy following an in-depth review by the RRH Safety, Energy Transition & Tech Committee, see page 34 of the
RRH Annual Report 2024 for information on our progress in advancing the strategy and progress against our targets
in 2024.
The RRH Board receives information through reports from the Chief Executive and Group-level reviews on various
topics to help the Company make decisions relating to net zero ambitions and proposals to divest or invest. In
November, members of the RRH Board attended the Rolls-Royce Schools Prize for Science & Technology 2022-2024
held in Derby, UK. Further information on this event in our community can be found on page 44 of our Stakeholder
engagement section.
The desirability of the
Company maintaining
a reputation for high
standards of business
conduct
The RRH Board reviews and approves our ethics and compliance frameworks and the General Counsel provides
regular updates to the RRH Board on compliance with regulation. This, in conjunction with the RRH 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.
Strategic Report Rolls-Royce plc Annual Report 2024
44
Section 172 and stakeholder engagement continued
Stakeholder engagement
Consistent communication with stakeholders is a priority for the Company, RRH 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 the Directors’
decision making and long-term strategy.
Stakeholder
Engagement
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
RRH boardroom. The activities of the Employee Champions during the year and opportunities for further engagement in 2025
were discussed at the RRH Nominations, Culture & Governance Committee. The Employee Champions provide regular
feedback on topics of interest and/or concern. This provides a valuable link between our people and the Directors. 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 RRH 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 RRH Board members and share their experiences from Rolls-Royce. We are committed to holding other
Meet the Board events in 2025 as the RRH 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 RRH Board. This allowed the RRH 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
RRH 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 RRH shares or the 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 RRH will match the shares up to a certain amount.
Customers The Directors recognise 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.
The Directors regularly receive operational updates, including customer metrics and feedback, across all the divisions. This
greatly influences the Directors’ deliberations and their support for the Executive Team when considering our strategy. The
RRH Cha
ir and Chief Executive will continue to meet with key customers during 2025.
Suppliers
and partners
The interests of both our suppliers and partners are regularly considered as part of discussions on manufacturing strategy
and when reviewing specific projects. The Directors support our Executive Team, who work collaboratively with our suppliers
and partners, to continue to improve operational performance through various means. The Directors 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 supplie
rs with the ongoing challenges experienced across the aerospace supply chain.
Communities The Directors recognise the importance of our communities and understand 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, members of the RRH Board, the Company’s Board and the Executive Team attended the Rolls-Royce Schools
Prize for Science & Technology 2022-2024 which was held in Derby, UK with approximately 150 attendees. 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 vis
its to the Rolls
-
Royce Heritage Centre and apprentice workshop.
Governing
bodies and
regulators
The Directors recognise 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 RRH 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 RRH Board engaged with
and briefed the new post-holders on the Group’s strategy and performance. The Directors are updated on engagement with
tax authorities and the related regulatory landscape. The General Counsel provides regular updates to the Board on
compliance with regulation.
Strategic Report Rolls-Royce plc Annual Report 2024
45
Section 172 and stakeholder engagement continued
During 2024, the RRH 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, the RRH Chair was appointed
as a member of the industrial strategy advisory council established by the UK Government in December.
Investors The investor relations team is the key interface between the investment community and the Company, providing frequent
dialogue and feedback. The RRH Chair and members of the RRH Board make themselves available to meet with institutional
investors and seek to understand and prioritise the issues that matter most. In addition, the Directors, 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. 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).
Strategic Report approved by the Board on 27 February 2025 and signed on its behalf by:
..............................
Helen McCabe
Director
Directors’ Report Rolls-Royce plc Annual Report 2024
46
DIRECTORS’ REPORT
The Directors present their Directors’ Report on the Rolls-Royce plc Group (the Group), together with the audited consolidated financial
statements for the year ended 31 December 2024.
Directors
The Directors who held office during the year and up to the date of signing the Financial Statements were as follows:
Tufan Erginbilgic
Mark Gregory
Sarah Armstrong
Helen McCabe
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 and for their Directors and
officers.
Dividends
The Directors do not recommend the payment of a dividend (2023: £nil).
Corporate governance
The Directors are ultimately responsible for the direction, management, performance and long-term sustainable success of the Company. The
Board of RRH 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 RRH Board has established certain principal committees to assist in fulfilling its oversight responsibilities, providing dedicated focus on
particular areas. RRH is subject to the principles and provisions of the UK Corporate Governance Code 2018 (the ‘Code’).
The Company operates in compliance with the Group’s policies, procedures and governance framework. Details of RRH’s compliance with the
Code and the Group’s policies, procedures and governance framework are set out in the RRH Annual Report 2024.
Risk management and internal control
The RRH Audit Committee oversees the Group’s financial reporting, considering key accounting judgements and estimates; disclosures;
compliance with regulations; and whether the Annual Report is fair, balanced and understandable. The RRH Audit Committee also monitors the
effectiveness of the Group’s risk management and internal control environment.
In addition, the RRH Audit Committee provides oversight in respect of the scope, resources, results, and effectiveness of internal audit. It is
responsible for the relationship with, and the effectiveness of, the external auditors as well as approving their terms of engagement and fees.
Financial reporting
The Group has complex long-term contract accounting and every year the RRH Audit Committee spends much of its time reviewing the accounting
policies and judgements implicit in the Group’s financial results. In 2024, it 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.
The Directors have ensured that the disclosures in respect of all key areas of judgement are appropriate and balanced. They have continued to
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 59.
A summary of the principal matters considered by the RRH Audit Committee in respect of the 2024 Consolidated Financial Statements is set out
below.
Area of focus
Considerations
Long-term
contract
accounting
The RRH Audit 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 RRH Audit 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 its considerations, it reviewed onerous contracts given their sensitivity to changes in revenue and cost
assumptions. The RRH Audit Committee also reviewed catch-ups to understand the changes to revenue and cost
assumptions driving them. It reviewed the disclosures and concluded these, together with the assessments, were
appropriate.
See
note
14
in the
Consolidated Financial Statements.
Directors’ Report Rolls-Royce plc Annual Report 2024
47
Corporate governance continued
Tax accounting The RRH Audit 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 RRH Audit
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 of the Group’s mid-term targets. The RRH Audit Committee
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. It considered the recoverability of advanced corporation tax in light of the Group’s plans for
shareholder distributions. It confirmed the approach, which remained consistent with that taken in 2023, together with
the disclosur
es set out in note
5
to the Consolidated Financial Statements.
Transformation
programme
The RRH Audit 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 RRH Audit Committee also considered whether excluding these costs from
the underlying results was appropriate in light of the Group’s definition of underlying results. The RRH Audit Committee
con
cluded that the treatment of these costs as non
-
underlying was appropriate.
Going concern
and viability
As in previous years, the RRH Audit Committee reviewed the information, underlying assumptions and downside risks
modelled and presented in support of the going concern and viability assessment. The RRH Audit 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 RRH Audit 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 RRH Audit 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 RRH Audit 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 5 in the Consolidated
Financial Statements.
Alternative
Performance
Measures
(APMs)
As in previous years, the RRH Audit Committee reviewed the clarity of the definitions and the reconciliation of each APM
to its statutory equivalent. The RRH Audit Committee concluded that there was no undue prominence of the APMs in the
RRH Annual Report. See page 161 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 30. During 2024, we focused on 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 31. 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 Executive Team and the RRH Board or an appropriate RRH Board Committee. Based
on this and on our other activities, including consideration of the work of internal and external audit and attendance at the RRH Board Committee
meetings by divisional and functional risk owners, the RRH 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 30 to 39. The RRH Board has allocated certain principal
risks to the RRH Audit Committee which considered these in detail throughout the year, as described below.
From their discussions, they are satisfied that the principal risks that they oversee have received appropriate management attention during 2024:
- Business interruption: the RRH Audit Committee received updates on the status of the Group’s continuity risk management, including the
risks to internal facilities’ resilience.
- Information and data, including cyber: the RRH Audit Committee received updates on the status of cyber security risk, including details of
controls and comprehensive mitigation plans, as well as an assessment of risk management effectiveness.
Internal financial control
The RRH Audit Committee specifically reviews the Group’s internal controls over financial reporting. During 2024, it received an update on the
risk assessment to identify the controls considered to be material and in-scope from a financial reporting perspective. It monitored progress
against the 2024 financial controls programme to strengthen the financial reporting and compliance controls. It confirmed completion of
identified key activities. It also considered the external auditor’s observations on the financial control environment.
Effectiveness of risk management and internal control systems
The RRH Audit Committee conducted a review of the effectiveness of the Group’s risk management and internal control systems, including those
relating to the financial reporting process. Where opportunities for improvement were identified, action plans have been put in place and progress
is monitored by the RRH Audit Committee. In 2024, no significant weaknesses were identified.
Directors’ Report Rolls-Royce plc Annual Report 2024
48
Employment of disabled persons
We 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.
Employee engagement
Engagement is an outcome of our employee experience with a focus driven through our people leadership practices, purpose and behaviours.
Our leaders are catalysts for change, 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.
Engagement is one of our Group KPIs with continued links to leadership incentive plans (see page 16). In 2024, we launched a new colleague
survey, Our Voices, which provides insights into the employee experience and increases our leaders’ accountability for driving change. As this is
our first year for Our Voices, we have benchmarked our 2024 score of 78 against the global manufacturing index, the mean average being 75 and
the 75th percentile being 81 for 2024.
In addition to our survey, we provide a variety of channels for colleague engagement and listening, including interactive learning sessions,
newsletters and team briefings as well as digital communication channels such as Viva Engage. Through our transformation programme we have
introduced new ways to engage with colleagues. In 2024, we have continued to hold regular live town halls with Q&As hosted by our Chief
Executive and Executive Team.
In May and September 2024, the Group held Meet the Board events continuing to foster engagement with Directors and colleagues. In 2024,
over 1,200 colleagues volunteered to be part of our change makers network, driving cultural transformation as One Rolls-Royce. The change
makers help to promote our 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.
In September 2024, we launched the Your Shares: Gifted employee share plan, awarding 150 RRH shares to every employee (or cash equivalent
where share allotment is not permitted). With 99% participation, this initiative has transformed our share ownership culture, strengthening
alignment with our purpose and strategy.
For more information, see our Stakeholder engagement section on page 44.
Financial instruments and risk management
Details of financial instruments and risk management are set out in note 19 to the Consolidated Financial Statements.
Post balance sheet events
Details of important events affecting the Group which have occurred since the end of the financial year are set out in note 1 to the Consolidated
Financial Statements.
Related party transactions
Details of related party transactions are set out in note 25 to the Consolidated Financial Statements.
Disclosures in the Strategic Report
The Directors have taken advantage of section 414C(11) of the Act to include disclosures in the Strategic Report including:
- the future development, performance and position of the Group;
- research and development activities; and
- engagement with suppliers, customers and others.
Disclosures in the Rolls-Royce Holdings plc Annual Report
The following disclosures are provided in the Company’s ultimate parent entity annual report:
- greenhouse gas emissions (page 212 of RRH Annual Report 2024); and
- political donations (page 222 of RRH Annual Report 2024); and
- non-financial and sustainability information statement (see page 32 of RRH Annual Report 2024).
Management report
The Strategic Report and the Directors’ Report together are the management report for the purposes of Rule 4.1.8R of the DTRs.
Directors’ Report Rolls-Royce plc Annual Report 2024
49
Responsibility statements
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 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.
Independent Auditors
The auditors, PriceWaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution for their re-appointment will
be put to the 2025 annual general meeting.
Directors’ Report approved by the Board on 27 February 2025 and signed on its behalf by:
.........................................
Director
Date:
Financial Statements Rolls-Royce plc Annual Report 2024
50
Consolidated Financial Statements
Company Financial Statements
Primary statements Primary statements
Consolidated income statement 51 Company balance sheet 115
Consolidated statement of comprehensive income 52 Company statement of comprehensive income 116
Consolidated balance sheet 53 Company statement of changes in equity 116
Consolidated cash flow statement 54
Consolidated statement of changes in equity 57
Notes to the Consolidated Financial Statements Notes to the Company Financial Statements
1 Accounting policies 58 1 Accounting policies 117
2 Segmental analysis 71 2 Employee information and emoluments of
d
irectors
126
3 Research and development 78 3 Intangible assets 127
4 Net financing 78 4 Property, plant and equipment 128
5 Taxation 79 5 Right-of-use assets 129
6 Auditors’ remuneration 83 6 Investments 129
7 Employee information 83 7 Inventories 129
8 Intangible assets 84 8 Trade receivables and other assets 131
9 Property, plant and equipment 87 9 Contract assets and liabilities 131
10 Right-of-use assets 88 10 Cash and cash equivalents 132
11 Investments 89 11 Borrowings and lease liabilities 132
12 Inventories 91 12 Leases 133
13 Trade receivables and other assets 91 13 Trade payables and other liabilities 133
14 Contract assets and liabilities 92 14 Other financial assets and liabilities 135
15 Cash and cash equivalents 93 15 Provisions for liabilities and charges 136
16 Borrowings and lease liabilities 93 16 Deferred taxation 137
17 Leases 94 17 Post-retirement benefits 139
18 Trade payables and other liabilities 95 18 Share capital 142
19 Financial instruments 96 19 Share-based payments 142
20 Provisions for liabilities and charges 105 20 Contingent liabilities 143
21 Post-retirement benefits 106 21 Related party transactions 143
22 Share capital 110 22 Parent and ultimate parent company 143
23 Share-based payments 110
24 Contingent liabilities 111
25 Related party transactions 112 Subsidiaries 144
26 Acquisitions, disposals, held for sale and
discontinued operations
113 Joint ventures and associates 148
27 Derivation of summary funds flow statement 114
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
51
For the year ended 31 December 2024
202 4 | 202 3 | ||
Notes | £m | £m | |
Revenue | 2 | ||
Cost of sales 1,2 | ( | ( | |
Gross profit | 2 | ||
Commercial and administrative costs | 2 | ( | ( |
Research and development costs 2 | 2, 3 | ( | ( |
Share of results of joint ventures and associates | 11 | ||
Operating profit | |||
Gain arising on disposal of businesses | 26 | ||
Profit before financing and taxation | |||
Financing income | 4 | ||
Financing costs | 4 | ( | ( |
Net financing ( costs )/ income 3 | ( | ||
Profit before taxation | |||
Taxation | 5 | ( | |
Profit for the year | |||
Attributable to: | |||
Ordinary shareholders | |||
Non - controlling interests (NCI) | ( | ( | |
Profit for the year | |||
Other comprehensive income / (expense) | ( | ||
Total comprehensive income for the year |
1 Cost of sales includes a net charge for expected credit losses (ECLs) of £14 m (2023: release of £48 m). Further details can be found in note 13
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, £132 m, and research and
development, £413 m. Further details can be found in notes 2, 3 and 8
3 Included within net financing are fair value changes on derivative contracts. Further details can be found in notes 2, 4 and 19
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
52
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2024
202 4 | 202 3 | ||
Notes | £m | £m | |
Profit for the year | |||
Other comprehensive income/(expense) (OCI) | |||
Actuarial movements on post - retirement schemes | 21 | ||
Revaluation to fair value of other investments | 11 | ( | ( |
Share of OCI of joint ventures and associates | 11 | ( | |
Related tax movements | 5 | ( | |
Items that will not be reclassified to profit or loss | |||
Foreign exchange translation differences on foreign operations | ( | ( | |
Foreign exchange translation differences reclassified to income statement on disposal of businesses | |||
Movement on fair values charged to cash flow hedge reserve | ( | ( | |
Reclassified to income statement from cash flow hedge reserve | |||
Share of OCI of joint ventures and associates | 11 | ( | |
Related tax movements | 5 | ( | |
Items that will be reclassified to profit or loss | ( | ( | |
Total other comprehensive income /(expense) | ( | ||
Total comprehensive income for the year | |||
Attributable to: | |||
Ordinary shareholders | |||
NCI | ( | ( | |
Total comprehensive income for the year |
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
53
CONSOLIDATED BALANCE SHEET
As at 31 December 2024
202 4 | 202 3 | ||
ASSETS | Notes | £m | £m |
Intangible assets | 8 | ||
Property, plant and equipment | 9 | ||
Right - of - use assets | 10 | ||
Investments – joint ventures and associates | 11 | ||
Investments – other | 11 | ||
Other financial assets | 19 | ||
Deferred tax assets | 5 | ||
Post - retirement scheme surpluses | 21 | ||
Non - current assets | |||
Inventories | 12 | ||
Trade receivables and other assets | 13 | ||
Contract assets | 14 | ||
Taxation recoverable | |||
Other financial assets | 19 | ||
Cash and cash equivalents | 15 | ||
Current assets | |||
Assets held for sale | 26 | ||
TOTAL ASSETS | |||
LIABILITIES | |||
Borrowings and lease liabilities | 16 | ( | ( |
Other financial liabilities | 19 | ( | ( |
Trade payables and other liabilities | 18 | ( | ( |
Contract liabilities | 14 | ( | ( |
Current tax liabilities | ( | ( | |
Provisions for liabilities and charges | 20 | ( | ( |
Current liabilities | ( | ( | |
Borrowings and lease liabilities | 16 | ( | ( |
Other financial liabilities | 19 | ( | ( |
Trade payables and other liabilities | 18 | ( | ( |
Contract liabilities | 14 | ( | ( |
Deferred tax liabilities | 5 | ( | ( |
Provisions for liabilities and charges | 20 | ( | ( |
Post - retirement scheme deficits | 21 | ( | ( |
Non - current liabilities | ( | ( | |
Liabilities associated with assets held for sale | 26 | ( | ( |
TOTAL LIABILITIES | ( | ( | |
NET LIABILITIES | ( | ( | |
EQUITY | |||
Called - up share capital | 22 | ||
Share premium | |||
Cash flow hedge reserve | |||
Translation reserve | |||
Accumulated losses | ( | ( | |
Equity attributable to ordinary shareholders | ( | ( | |
Non - controlling interest (NCI) | |||
TOTAL EQUITY | ( | ( |
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
54
CONSOLIDATED CASH FLOW STATEMENT
For the year ended 31 December 2024
202 4 | 202 3 | ||
Notes | £m | £m | |
Reconciliation of cash flows from operating activities | |||
Oper ating profit | |||
Loss on disposal of property, plant and equipment | |||
Loss on disposal of intangible assets | |||
Share of results of joint ventures and associates | 11 | ( | ( |
Dividends received from joint ventures and associates | 11 | ||
Amortisation and impairment of intangible assets | 8 | ( | |
Depreciation and impairment of property, plant and equipment | 9 | ||
Depreciation and impairment of right - of - use assets | 10 | ||
Adjustment of amounts payable under residual value guarantees within lease liabilities | 17 | ( | ( |
Impairment of and other movements on investments | 11 | ||
Decrease in provisions | ( ) | ( | |
Increase in inventories | ( | ( | |
Movement in trade receivables/payables and other assets/liabilities | ( | ||
Movement in contract assets/liabilities | |||
Cash flows on other financial assets and liabilities held for operating purposes 1 | ( | ( | |
Cash flows on settlement of excess derivative contracts 2 | ( | ( | |
Interest received | |||
Net defined benefit post - retirement cost recognised in profit before financing | 21 | ||
Cash funding of defined benefit post - retirement schemes | 21 | ( | ( |
Share - based payments | 23 | ||
Net cash inflow from operating activities before taxation | |||
Taxation paid | ( | ( | |
Net cash inflow from operating activities | |||
Cash flows from investing activities | |||
Movement in other investments | 11 | ||
Additions of intangible assets | 8 | ( | ( |
Disposals of intangible assets | |||
Purchases of property, plant and equipment | ( | ( | |
Disposals of property, plant and equipment | |||
Acquisition of businesses | ( | ||
Disposal of businesses (including cash flows on disposals in prior periods) | 26 | ( | |
Movement in investments in joint ventures and associates | 11 | ( | ( |
Movement in short - term investments | |||
Cash flows on other financial assets and liabilities held for non - operating purposes | ( | ||
Net cash outflow from investing activities | ( | ( | |
Cash flows from financing activities | |||
Repayment of loans | ( | ( | |
Settlement of swaps hedging fixed rate borrowings | ( | ||
Proceeds from increase in loans | |||
Capital element of lease payments | ( | ( | |
Net cash flow from decrease in borrowings and leases | ( | ( | |
Interest paid | ( | ( | |
Interest element of lease payments | ( | ( | |
Fees paid on undrawn facilities | ( | ( | |
Transactions with NCI 3 | |||
Dividends to NCI | ( | ( | |
Movement on balances with parent company | ( | ||
Net cash outflow from financing activities | ( | ( | |
Change in cash and cash equivalents | |||
Cash and cash equivalents at 1 January | |||
Exchange losses on cash and cash equivalents | ( | ( | |
Cash and cash equivalents at 31 December 4 |
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 £146 m (2023: £389 m) 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
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
55
CONSOLIDATED CASH FLOW STATEMENT CONTINUED
For the year ended 31 December 2024
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
56
CONSOLIDATED CASH FLOW STATEMENT CONTINUED
For the year ended 31 December 2024
| Exchange | Fair value | Other | At 31 | ||||
At 1 January | Funds flow | differences | adjustments | Reclassifications | movements | December | |
£m | £m | £m | £m | £m | £m | £m | |
2024 | |||||||
Cash at bank and in hand | 739 | (16) | (10) | – | – | – | 713 |
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 | 1,852 | (62) | – | – | – | 5,574 |
Overdrafts | (53) | 51 | – | – | – | – | (2) |
| Cash and cash equivalents | |||||||
(per cash flow statement) | 3,731 | 1,903 | (62) | – | – | – | 5,572 |
Other current borrowings | (478) | 471 | – | (18) | (774) | – | (799) |
Non - current borrowings | (3,568) | (3) | 19 | 7 | 774 | (5) | (2,776) |
Lease liabilities | (1,660) | 2 99 | (7) | – | 1 | (1 88 ) | (1,555) |
| Lease liabilities included within | |||||||
liabilities held for sale | – | – | – | – | (1) | – | (1) |
Financial liabilities | (5,706) | 7 67 | 12 | (11) | – | (1 93 ) | (5,131) |
Net cash/(debt) excluding the fair value of swaps | (1,975) | 2,6 70 | (50) | (11) | – | (1 93 ) | 441 |
| Fair value swaps hedging fixed | |||||||
rate borrowings 1 | 23 | 11 | (18) | 17 | – | – | 33 |
Net cash /( debt ) | (1,952) | 2,6 81 | (68) | 6 | – | (1 93 ) | 474 |
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 fair value | – | ||||||
swaps | (3,337) | 1,489 | 57 | 7 | (191) | (1,975) | |
| Fair value swaps hedging fixed | – | ||||||
rate borrowings 1 | 86 | – | (59) | (4) | – | 23 | |
Net ( debt ) | (3,251) | 1,489 | (2) | 3 | – | (191) | (1,952) |
Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
57
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the 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.
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 | |||||||||
| Cash flow | Accum- | ||||||||
| Share | Share | hedging | Translation | ulated | Total | ||||
capital | premium | reserves 1 | reserve | losses | Total | NCI | equity | ||
Notes | £m | £m | £m | £m | £m | £m | £m | £m | |
At | ( | ( | ( | ||||||
Profit /(loss) for the year | ( | ||||||||
Foreign exchange translation differences on foreign operations | ( | ( | ( | ||||||
Actuarial movements on post - retirement schemes | 2 1 | ||||||||
Fair value movement on cash flow hedges | ( | ( | ( | ||||||
| Reclassified to income statement from cash flow | |||||||||
hedg e reserve | |||||||||
Revaluation to fair value of other investments | 11 | ( | ( | ( | |||||
OCI of joint ventures and associates | 11 | ( | ( | ( | ( | ||||
Related tax movements | 5 | ( | ( | ||||||
Total comprehensive (expense)/income for the year | ( | ( | |||||||
Share - based payments – direct to equity 2 | 2 3 | ||||||||
Dividends to NCI | ( | ( | |||||||
Transactions with NCI 3 | |||||||||
Related tax movements | 5 | ||||||||
Other changes in equity in the year | |||||||||
At | ( | ( | ( | ||||||
At 1 January 2023 | ( | ( | ( | ||||||
Profit /(loss) for the year | ( | ||||||||
Foreign exchange translation differences on foreign operations | ( | ( | ( | ||||||
| Foreign exchange translation differences | |||||||||
reclassified to income statement on disposal of businesses | |||||||||
Actuarial m ovement s on post - retirement schemes | 21 | ||||||||
Fair value movement on cash flow hedges | ( | ( | ( | ||||||
| Reclassified to income statement from cash flow | |||||||||
hedge reserve | |||||||||
Revaluation to fair value of other investments | 11 | ( | ( | ( | |||||
OCI of joint ventures and associates | 11 | ( | |||||||
Related tax movements | 5 | ( | ( | ( | ( | ||||
Total comprehensive (expense)/income for the year | ( | ( | ( | ||||||
Share - based payments – direct to equity 2 | 23 | ||||||||
Dividends to NCI | ( | ( | |||||||
Transactions with NCI 3 | |||||||||
Related tax movements | 5 | ||||||||
Other changes in equity in the year | |||||||||
At 31 December 2023 | ( | ( | ( |
1 Hedging reserves includes the cash flow hedge reserve of £13 m and the cost of the hedging reserve of £nil (31 December 2023: £12 m and £nil respectively)
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
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
58
1 Accounting policies
The Company and the Group
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.
The Consolidated Financial Statements have been prepared on a going concern basis as described on page 40. 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 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 40. 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 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.
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.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
59
1 Accounting policies continued
Climate change (continued)
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 61 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 Civil Aerospace | Impact on impairment of non- | Impact on UK deferred tax | |
Risk | Statements | LTSAs | financial assets | asset recoverability |
| Changing | Overall forecast demand | Forecast EFH are based | Given the level of | Forecast EFH are based |
| customer demand | is expected to be robust | on customer and | headroom in the | on customer and market |
| in each scenario, | market data and | programme intangible | data and therefore | |
| although product mix may | therefore already | assets and Power Systems | include the latest | |
| change with customer | include the latest | and Rolls-Royce | expectation of the | |
| requirements. | expectation of the | Deutschland goodwill, the | impact of climate change | |
| impact of climate | potential impact of a | on demand. A sensitivity | ||
| change on demand. A | change in customer | disclosing the impact of a | ||
| sensitivity disclosing | demand does not indicate | 5% change in margin or | ||
| the impact of a 1% | any potential impact. | shop visits is disclosed on | ||
| change in EFH | page 65. | |||
| forecasts over the | ||||
| remaining term of Civil | ||||
| LTSA contracts is | ||||
disclosed on page 64 . | ||||
| Changes in costs | The potential impact of | The increase in the cost | Given the level of | The forecast of probable |
| due to carbon | carbon pricing has been | base of the current Civil | headroom in the | future taxable profits |
pricing 1 and | estimated by applying | LTSA contracts due to | programme intangible | reflects the increase in |
| commodity price | carbon prices to the | carbon and commodity | assets and Power Systems | the cost base that could |
changes 2 | forecast emissions | prices is estimated to | and Rolls-Royce | arise from carbon and |
| generated by the Group | be around 1% (2023: 1%) | Deutschland goodwill, the | commodity prices | |
| and its supply chain. This | with the incremental | potential impact of the | consistent with the | |
| impact, together with that | cost included in the | cost increases in the | methodology applied for | |
| from estimated | cost to complete | scenarios does not | Civil Aerospace LTSA. | |
| commodity prices under | estimates that drive | indicate any potential | ||
| each scenario, have been | revenue recognition. | impact. | Disclosed on page 65 is | |
| added/deducted to | Changes in estimates | the impact of changing | ||
| forecast costs in the base | have not had a material | The assessment has | the proportion of cost | |
| forecasts. | impact on revenue | considered each of the | increases that can be | |
| catch-ups or contract | Group’s climate scenarios. | passed onto customers | ||
| The analysis reflects that: | loss provisions in the | following the expiry of | ||
| decarbonisation activities | year (2023: not | existing LTSAs. | ||
| will occur in both the | material). | |||
| Group and its supply | ||||
| chain; and that some | A sensitivity disclosing | |||
| supplier contracts offer | the impact of a 2% | |||
| protection from cost | change in shop visit | |||
| increases in the short- to | costs over the | |||
| medium-term where | remaining term of Civil | |||
| pricing is fixed or subject | LTSA contracts is | |||
| to capped escalation | disclosed on page 64. | |||
clauses. | ||||
| Change in | Changing investment | No impact to existing | Impairment tests are | Given the UK deferred tax |
| investment | requirements may arise | LTSAs. | either: performed on a | asset recoverability is |
| requirement | due to the introduction | value in use basis and the | largely dependent on | |
| /acceleration of new | investment associated | Civil and Defence | ||
| technologies. | with new products is | aerospace markets, the | ||
| required to be excluded; | increase in research and | |||
| Research is expensed and | or have sufficient | development expenditure | ||
| development costs | headroom such that the | required under this | ||
| capitalised as incurred. | estimated investment | scenario does not have a | ||
| requirement is not | material impact. | |||
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
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
60
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 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 8. 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 they 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
161 to 164.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
61
1 Accounting policies continued
Area | Key judgements | Key sources of estimation uncertainty | Page |
| Revenue recognition | — Whether Civil Aerospace OE and aftermarket | — Estimates of future revenue including | 63 |
| and contract assets | contracts should be combined. | customer pricing, and costs of long-term | |
| and liabilities | — How performance on long-term aftermarket | contractual arrangements, including the | |
| contracts should be measured. | impact of climate 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 contracts entered into in | |||
| connection with OE sales 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. | 64 | |
| sharing arrangements | |||
| (RRSAs) | |||
Taxation | — Estimates necessary to assess whether it is | 65 | |
| probable 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 | 67 | |
| development | incurred 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. | 68 | |
| Impairment of non- | — Determination of cash-generating units for | 68 | |
| current assets | assessing impairment of goodwill. | ||
Provisions | — Whether any costs should be treated as wastage. | — Estimates of the time and cost to incorporate | 69 |
| — Whether the criteria to recognise transformation | required modified parts into the fleet to | ||
| and restructuring provision has been met. | 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. | |||
| — 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 | 70 | |
| benefits | net defined benefit obligation. |
Material accounting policies
The Group’s significant accounting policies are set out on pages 62 to 71. These accounting policies have been applied consistently to all periods
presented in these Consolidated Financial Statements.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
62
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
63
1 Accounting policies continued
Revenue recognition (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
64
1 Accounting policies continued
Revenue recognition (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
65
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
66
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
67
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
68
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
69
1 Accounting policies continued
Cash and cash equivalents (continued)
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
70
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
71
1 Accounting policies continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
72
2 Segmental analysis continued
| 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 202 4 | |||||||
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 | 1 2 | – | 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 202 3 | – | ||||||
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 |
U nderlying operating profit/(loss) | 850 | 562 | 413 | (160) | (15) | (60) | 1,590 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
73
2 Segmental analysis continued
| Underlying | |||
| adjustments and | Group | ||
| Total | adjustments to | statutory | |
| underlying | foreign exchange | results | |
£m | £m | £m | |
Year ended 31 December 202 4 | |||
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 venture and associates | 175 | (3) | 172 |
Operating profit | 2,464 | 442 | 2,906 |
Gain arising on the acquisition and disposal of businesses | – | 16 | 1 6 |
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 202 3 | |||
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 venture and associates | 162 | 11 | 173 |
Operating profit | 1,590 | 354 | 1,944 |
Gain arising on the acquisition and 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) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
74
2 Segmental analysis continued
| Corporate | |||||||
| Civil | Power | New | Other | and Inter- | Total | ||
| Aerospace | Defence | Systems | Markets | businesses | segment | Underlying | |
Year ended 31 December 2024 | £m | £m | £m | £m | £m | £m | £m |
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 202 3 | |||||||
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 |
| Underlying | |||
| adjustments and | Group | ||
| adjustments to | statutory | ||
| Total underlying | foreign exchange | results 1 | |
£m | £m | £m | |
Year ended 31 December 202 4 | |||
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 202 3 | |||
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
75
2 Segmental analysis continued
202 4 | 202 3 | |
£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 |
202 4 | 202 3 | |||||
| After | Within | After | ||||
| Within | five | five | five | |||
| five years | years | Total | years | 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 |
48 . 4 | 3 3 . 7 | 82.1 | 40.6 | 27.9 | 68.5 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
76
2 Segmental analysis continued
202 4 | 202 3 | ||||||||
| 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 change to 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 | – | – |
I mpact 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) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
77
2 Segmental analysis continued
Balance sheet analysis
| Total | |||||
| Civil | Power | New | reportable | ||
| Aerospace | Defence | Systems | Markets | segments | |
£m | £m | £m | £m | £m | |
Year ended 31 December 202 4 | |||||
Segment assets | 19,303 | 3,495 | 3,998 | 111 | 26,907 |
Interests in joint ventures and associates | 550 | 9 | 33 | – | 592 |
Segment liabilities | (26,611) | (3,315) | (1,964) | (134) | (32,024) |
Net (liabilities)/assets | (6,758) | 189 | 2,067 | (23) | (4,525) |
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 |
Year ended 31 December 202 3 | |||||
Segment assets | 17,718 | 3,517 | 3,814 | 115 | 25,164 |
Interests in joint ventures and associates | 444 | 7 | 28 | – | 479 |
Segment liabilities | (24,437) | (3,369) | (1,760) | (87) | (29,653) |
Net (liabilities)/assets | (6,275) | 155 | 2,082 | 28 | (4,010) |
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
202 4 | 202 3 | |
£m | £m | |
Total reportable segment assets ( excluding held for sale ) | 26,907 | 25,164 |
Other businesses | 11 | 8 |
Corporate and Inter - segment | (1,889) | (1,673) |
Interests in joint ventures and associates | 592 | 479 |
Assets held for sale | 153 | 109 |
Cash and cash equivalents and short - term investments | 5,574 | 3,784 |
Fair value of swaps hedging fixed rate borrowings | 154 | 118 |
Deferred and income tax assets | 3,731 | 3,078 |
Post - retirement scheme surplus | 790 | 782 |
Total assets | 36,023 | 31,849 |
Total reportable segment liabilities ( excluding held for sale ) | (32,024) | (29,653) |
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 | (36,544) | (35,118) |
Net liabilities | (521) | (3,269) |
202 4 | 202 3 | |
£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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
78
202 4 | 202 3 | |
£m | £m | |
Gross research and development costs | (1,475) | (1,390) |
Contributions and fees 1 | 700 | 548 |
Net e xpenditure in the year | (775) | (842) |
Capitalised as intangible assets | 263 | 192 |
Amortisation and impairment of capitalised costs 2, 3 | 309 | (89) |
Net cost recognised in the income statement | (203) | (739) |
Underlying adjustments 3 | (402) | – |
Net underlying cost recognised in the income statement | (605) | (739) |
202 4 | 202 3 | |||
| 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 |
In terest 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) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
79
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 |
Defer red 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 a decrease in 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 |
OCI | Equity | |||||
| Items that will not be | Items that will be reclassified | |||||
reclassified | ||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |
Deferred tax: | £m | £m | £m | £m | £m | £m |
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 |
202 4 | 202 3 | |
£m | £m | |
Profit before taxation | 2,234 | 2,427 |
Less : share of results of joint ventures and associates ( note 11) | (137) | (139) |
Profit before taxation excluding joint ventures and associates | 2,097 | 2,288 |
Nominal ta x charge a t UK corporation tax rate 25 % (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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
80
5 Taxation continued
2024 | 2023 | |
£m | £m | |
At 1 January | 2,668 | 2,445 |
Amo unt 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 |
| Recognised in | |||||||
| income | Recognised in | Recognised in | Disposals related | Exchange | |||
| At 1 January | statement | OCI | equity | activity | differences | At 31 December | |
2024 | £m | £m | £m | £m | £m | £m | £m |
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 | |
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
81
5 Taxation continued
202 4 | 202 3 | |
£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 |
| 2024 | ||||
| Total gross losses | Foreign exchange | |||
| and deductible | and commodity | |||
| temporary | financial assets | Other | ||
| differences | UK losses | and liabilities | losses | |
£m | £m | £m | £m | |
Expiry within five years | 75 | – | – | 75 |
Expiry within six to 30 years | 218 | – | – | 218 |
No expiry | 2,698 | 2,515 | 107 | 76 |
2,991 | 2,515 | 107 | 369 |
| 2023 | ||||
| Total gross losses | Foreign exchange | |||
| and deductible | and commodity | |||
| temporary | financial assets | Other | ||
| differences | UK losses | and liabilities | losses | |
£m | £m | £m | £m | |
Expiry within five years | 81 | – | – | 81 |
Expiry within six to 30 years | 216 | – | – | 216 |
No expiry | 6,891 | 6,537 | 275 | 79 |
7,188 | 6,537 | 275 | 376 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
82
5 Taxation continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
83
202 4 | 202 3 | |
£m | £m | |
Fees payable to the Company’s auditors for the audit of the C ompany ’s Annual Fin ancial S tatements | 7.1 | 6.6 |
| Fees payable to the Company’s auditor and its associates for the audit of the Company’s subsidiaries | ||
pursuant to legislation | 5.3 | 5.5 |
Total fees payable for audit services | 12.4 | 12.1 |
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 | 13.2 | 13.0 |
Fees payable in respect of the Group’s pension schemes: | ||
Audit | 0.1 | 0.1 |
202 4 | 202 3 | |
Number 1 | Number | |
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 , 3 00 |
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 | 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 23) | 13 6 | 67 |
Pensions and other post - retirement scheme benefits (note 21 ) | 387 | 346 |
Group employment costs 3 | 3,9 48 | 3,769 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
84
| 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 202 4 | 1,009 | 436 | 2,330 | 28 | 295 | 304 | 4,402 |
At 31 December 2023 | 1,066 | 463 | 1,787 | 65 | 286 | 342 | 4,009 |
| 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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
85
8 Intangible assets continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
86
8 Intangible assets continued
Residual life 1 | Net book value | ||
202 4 | 202 3 | ||
£m | £m | ||
Trent programme intangible assets 2 | 1 - 15 years | 2,001 | 1,920 |
Business aviation programme intangible assets 3 | 1 0 - 15 years | 674 | 238 |
Intangible assets related to Power Systems 4 | 309 | 370 | |
2,9 84 | 2,528 |
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% |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
87
| Land and | Plant and | Aircraft and | In course of | ||
| buildings | equipment | engines | construction | Total | |
Cost : | £m | £m | £m | £m | £m |
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 202 3 | 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 202 3 | 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 |
202 4 | 202 3 | |||||
| Land and | Plant and | Aircraft and | Land and | Plant and | Aircraft and | |
| buildings | equipment | engines | buildings | equipment | engines | |
Assets held for use in leases where the Group is the lessor: | £m | £m | £m | £m | £m | £m |
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
88
| Aircraft | ||||
| Land and | Plant and | and | ||
| buildings | equipment | engines | Total | |
£m | £m | £m | £m | |
Cost : | ||||
At 1 January 202 3 | 506 | 162 | 1,827 | 2,495 |
Additions/modifications of leases | 38 | 56 | 104 | 198 |
Acquisition of businesses | 2 | – | – | 2 |
Disposals | (6) | (22) | (54) | (82) |
Transferred to current assets 1 | (4) | – | – | (4) |
Reclassification to PPE | (5) | – | (10) | (15) |
Exchange differences | (18) | (2) | (3) | (23) |
At 31 December 202 3 | 513 | 194 | 1,864 | 2,571 |
Additions/modifications 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 202 4 | 517 | 246 | 1,897 | 2,660 |
Accumulated depreciation and impairment: | ||||
At 1 January 202 3 | 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) |
Transferred to current assets 1 | – | – | – | – |
Reclassifications from PPE | (1) | – | (8) | (9) |
Exchange differences | (9) | (1) | (1) | (11) |
At 31 December 202 3 | 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: | ||||
At 31 December 202 4 | 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 202 4 | 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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
89
11 Investments
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 at 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 at FVOCI | – | (2) |
Revaluation of other investments accounted for at 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 third instalment of investment related 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
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
90
11 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 | (3 86 ) | (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 | |
Profit and total comprehensive income | £m | £m | £m | £m | £m | £m |
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) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
91
12 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 |
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 |
Amounts due from parent undertakings 3 | – | – | 337 | 337 | 337 | 337 |
Other taxation and social security receivable | 215 | 160 | 2 | 13 | 217 | 173 |
Costs to obtain contracts with customers 4 | 11 | 7 | 124 | 109 | 135 | 116 |
Other receivables and similar assets 5 | 530 | 478 | 58 | 45 | 588 | 523 |
7, 000 | 6,527 | 2,051 | 1,933 | 9,051 | 8,460 | |
Trade receivables and other assets are analysed as follows: | ||||||
Financial instruments ( note 19): | ||||||
Trade receivable and similar items | 5,525 | 5,194 | ||||
Other non - derivative financial assets | 366 | 332 | ||||
Non - financial instruments | 3,160 | 2,934 | ||||
9,051 | 8,460 |
| Trade | 202 4 | Trade | 202 3 | |||
| receivables | receivables | |||||
| and other | and other | |||||
| financial | Loss | Average | financial | Loss | Average | |
| assets | allowance | ECL rate | assets | allowance | ECL rate | |
£m | £m | % | £m | £m | % | |
Credit rating C and above | 2,179 | (74) | 3% | 2,081 | (102) | 5% |
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% | 5,768 | (242) | 4% |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
92
13 Trade receivables and other assets continued
| 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) |
Current | Non-current 1 | Total 2 | ||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |
Contract assets | £m | £m | £m | £m | £m | £m |
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 |
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 19 ) | 1,280 | 1,358 | ||||
Non - financial instruments | 14,476 | 13,178 | ||||
15,756 | 14,536 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
93
15 Cash and cash equivalents
| 2024 | 2023 | |
£m | £m | |
Cash at bank and in hand | 713 | 739 |
Money - market funds | 1,900 | 1,077 |
Short - term deposits | 2,961 | 1,968 |
Cash and cash equivalents per the balance sheet | 5,574 | 3,784 |
Overdrafts ( note 16) | (2) | (53) |
Cash and cash equivalents per cash flow statem ent (page 54 ) | 5,572 | 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.
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 |
202 4 | 202 3 | |
£m | £m | |
Expiring within one year | – | – |
Expiring after one year | 2,500 | 3,500 |
Total undrawn facilities | 2,500 | 3,500 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
94
202 4 | 202 3 | |
£m | £m | |
Land and buildings depreciation and impairment 1 | (45) | (45) |
Plant and equipment depreciation and impairment 2 | (45) | (48) |
Aircraft and engine s 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 income statement | (359) | (432) |
202 4 | 202 3 | |
£m | £m | |
Operating lease income 1, 2 | 99 | 104 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
95
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 |
Accruals | 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 follow s : | ||
Financial instruments ( note 19): | ||
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
96
19 Financial instruments
| Basis for | Assets | Amortised | Liabilities | Total | ||||
| determining | FVPL | FVOCI | cost | FVPL | Other | |||
202 4 | Notes | fair value | £m | £m | £m | £m | £m | £m |
Other non - current asset investments | 11 | A | – | 5 | – | – | – | 5 |
Trade receivables and similar items | 13 | B/C | – | 9 | 5,516 | – | – | 5,525 |
Other non - derivative financial assets | 13 | B | – | – | 366 | – | – | 366 |
Other assets | D /F | 21 | – | 16 | – | – | 37 | |
Derivative financial assets 1 | C | 298 | – | – | – | – | 298 | |
Cash and cash equivalents | 15 | B | 1,900 | – | 3,674 | – | – | 5,574 |
Borrowings | 16 | E/F | – | – | – | – | (3,577) | (3,577) |
Lease liabilities | 16 | G | – | – | – | – | (1,555) | (1,555) |
Derivative financial liabilities 1 | C | – | – | – | (2,054) | – | (2,054) | |
Financial RRSAs | H | – | – | – | – | (7) | (7) | |
Other liabilities | H | – | – | – | – | (198) | (198) | |
Trade payables and similar items | 18 | B | – | – | – | – | (6,205) | (6,205) |
| Other non-derivative financial | ||||||||
liabilities | 18 | B | – | – | – | – | (2,642) | (2,642) |
Contract liabilities | 14 | B | – | – | – | – | (1,280) | (1,280) |
2,219 | 14 | 9,572 | (2,054) | (15,464) | (5,713) | |||
Other non - current asset investments | 11 | A | 24 | 7 | – | – | – | 31 |
Trade receivables and similar items | 13 | B/C | – | 9 | 5,185 | – | – | 5,194 |
Other non - derivative financial assets | 13 | B | – | – | 332 | – | – | 332 |
Other assets | D /F | 32 | – | 12 | – | – | 44 | |
Derivative financial assets 1 | C | 350 | – | – | – | – | 350 | |
Cash and cash equivalents | 15 | B | 1,077 | – | 2,707 | – | – | 3,784 |
Borrowings | 16 | E/F | – | – | – | – | (4,099) | (4,099) |
Lease liabilities | 16 | G | – | – | – | – | (1,660) | (1,660) |
Derivative financial liabilities 1 | C | – | – | – | (2,228) | – | (2,228) | |
Financial RRSAs | H | – | – | – | – | (17) | (17) | |
Other liabilities | H | – | – | – | – | (163) | (163) | |
Trade payables and similar items | 18 | B | – | – | – | – | (5,091) | (5,091) |
| Other non-derivative financial | ||||||||
liabilities | 18 | B | – | – | – | – | (2,521) | (2,521) |
Contract liabilities | 14 | B | – | – | – | – | (1,358) | (1,358) |
1,483 | 16 | 8,236 | (2,228) | (14,909) | (7,402) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
97
19 Financial instruments continued
| Basis for | 202 4 | 202 3 | Fair | ||
| determining | Book value | Fair value | Book value | 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) |
| Foreign | |||||||
| exchange | Commodity | Interest rate | Total | Financial | |||
| contracts | contracts | contracts 1 | derivatives | RRSAs | Other | Total | |
£m | £m | £m | £m | £m | £m | £m | |
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) | (619) |
Non - current liabilities | (1,364) | (22) | (111) | (1,497) | (7) | (136) | (1,640) |
Liabilities | (1,903) | (40) | (111) | (2,054) | (7) | (198) | (2,259) |
(1,868) | (35) | 147 | (1,756) | (7) | (161) | (1,924) | |
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) | (425) |
Non - current liabilities | (1,766) | (15) | (73) | (1,854) | (7) | (122) | (1,983) |
Liabilities | (2,117) | (25) | (86) | (2,228) | (17) | (163) | (2,408) |
(2,035) | (19) | 176 | (1,878) | (17) | (119) | (2,014) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
98
19 Financial instruments continued
| Interest rate | ||||||||||
| Interest rate | instruments – | |||||||||
| Foreign exchange | Commodity | instruments – | non-hedge | |||||||
instruments | instruments | hedge accounted 1 | 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 | 7 98 | 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) |
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) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
99
19 Financial instruments continued
Hedged item 1 | Hedging instrument 2 | ||||||||||
| FV | FV | FV | Hedge | ||||||||
| adjustment | adjustment | Carrying | Carrying | movement | ineffective- | Weighted | |||||
| in the | since | Carrying | amount | amount | in the | ness 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 202 4 | SONIA | ||||||||||
Sterling | (375) | (3) | 11 | (364) | 375 | – | (12) | 3 | – | 1.00 | + 0.89 |
| SONIA | |||||||||||
USD | (658) | (25) | (137) | (795) | 658 | 128 | – | 25 | – | 1.52 | + 1.47 |
| SONIA | |||||||||||
Euro | (484) | 13 | 42 | (442) | 484 | – | (54) | (11) | 2 | 1.14 | + 1.09 |
At 31 December 202 3 | SONIA | ||||||||||
Sterling | (375) | (10) | 14 | (361) | 375 | – | (14) | 10 | – | 1.00 | + 0.89 |
| SONIA | |||||||||||
USD | (658) | 31 | (112) | (770) | 658 | 104 | – | (30) | 1 | 1.52 | + 1.47 |
| SONIA | |||||||||||
Euro | (968) | (14) | 37 | (931) | 968 | – | (56) | 16 | 2 | 1.14 | + 0.92 |
Hedged item | FV | Carrying | FV | Hedging instrument 1 | H edg ing reserve s | Closing | |||||
| movement | amount | movement | Hedge | Weighted | Amount | Recycled | cash flow | ||||
| in the | asset/ | in the | ineffectiveness | Weighted | average | recognised | to net | hedge | |||
| Nominal | period | Nominal | (liability) | period | in the period 2 | average | interest | in OCI | financing | reserve | |
£m | £m | £m | £m | £m | £m | FX rate | rate | £m | £m | £m | |
At 31 December 202 4 | |||||||||||
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 202 3 | |||||||||||
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) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
100
19 Financial instruments continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
101
19 Financial instruments continued
Expected maturity | Fair value | |||||
| Nominal | Within one | Between one | Between two | |||
| amount | year | and two years | and five years | Assets | Liabilities | |
At 31 December 2024 | £m | £m | £m | £m | £m | £m |
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) |
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 202 3 | 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 |
| 2024 | 2023 | |
£m | £m | |
Sterling | 1,915 | 2,376 |
USD | 1,719 | 1,671 |
Euro | 1, 1 79 | 1,661 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
102
19 Financial instruments continued
| 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 | 638 | 4,346 | 460 | 81 | 5,525 |
| Other non-derivative financial assets | 73 | 242 | 40 | 11 | 366 |
| Other assets | – | 21 | 16 | – | 37 |
| Cash and cash equivalents | 2,250 | 1,283 | 1,867 | 174 | 5,574 |
| Assets | 2,961 | 5,897 | 2,383 | 266 | 11,507 |
| 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) |
| 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 | (2,540) | (10,898) | (1,703) | (323) | (15,464) |
421 | (5,001) | 680 | (57) | (3,957) | |
| At 31 December 2023 | |||||
| Other non-current investments | 10 | 21 | – | – | 31 |
| Trade receivables and similar items | 556 | 4,039 | 513 | 86 | 5,194 |
| 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 | 1,902 | 5,114 | 2,056 | 313 | 9,385 |
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) |
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 | (2,441) | (9,892) | (2,272) | (304) | (14,909) |
(539) | (4,778) | (216) | 9 | (5,524) |
| 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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
103
19 Financial instruments continued
| Up to three | Between three | ||||
| months | months and one | More than one | |||
| Within terms | overdue | year overdue | year overdue | Total | |
£m | £m | £m | £m | £m | |
| At 31 December 2024 | |||||
| Other non-current asset investments | 5 | – | – | – | 5 |
| Trade receivables and similar items | 5,075 | 324 | 82 | 44 | 5,525 |
| Other non-derivative financial assets | 331 | 32 | – | 3 | 366 |
| Other assets | 28 | 9 | – | – | 37 |
| Derivative financial assets | 298 | – | – | – | 298 |
| Cash and cash equivalents | 5,574 | – | – | – | 5,574 |
11,311 | 365 | 82 | 47 | 11,805 | |
| At 31 December 2023 | |||||
| Other non-current asset investments | 31 | – | – | – | 31 |
| Trade receivables and similar items | 4,391 | 650 | 87 | 66 | 5,194 |
| 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 |
8,928 | 650 | 91 | 66 | 9,735 |
Gross values | |||||
| Between one | Between two | ||||
| Within one year | and two years | and five years | After five years | Carrying 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) |
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) |
(10,422) | (1,781) | (2,816) | (1,702) | (15,464) | |
| 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) |
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) |
(9,060) | (1,565) | (4,079) | (1,293) | (14,909) |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
104
19 Financial instruments continued
Gross values | ||||
| Within one | Between one | Between two | Carrying | |
| year | and two years | and 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) |
2024 | 2023 | |||||
| Floating | Floating | |||||
| Fixed rate | rate | Total | Fixed rate | rate | Total | |
£m | £m | £m | £m | £m | £m | |
Cash and cash equivalents 1 | – | 5,574 | 5,574 | – | 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) | 5,303 | 442 | (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% |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
105
19 Financial instruments continued
| 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 |
| At 1 | Charged to | Transfers | At 31 | ||||
| January | income | to held | Exchange | December | |||
| 2024 | statement 1 | Reversed | Utilised | 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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
106
20 Provisions for liabilities and charges continued
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
107
21 Post-retirement benefits continued
202 4 | 202 3 | |||||
| UK | Overseas | UK | Overseas | |||
| schemes | schemes | Total | schemes | schemes | Total | |
Defined benefit schemes: | £m | £m | £m | £m | £m | £m |
Current service cost and administrative expenses | 5 | 37 | 42 | 8 | 35 | 43 |
Past - service 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 |
| Defined | ||||||
Defined benefit | 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 |
202 4 | 202 3 | |||||
| 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 |
202 4 | 202 3 | |||||
| UK | Overseas | UK | Overseas | |||
| schemes | schemes | Total | schemes | schemes | Total | |
Actuarial gains and losses arising from: | £m | £m | £m | £m | £m | £m |
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
108
21 Post-retirement benefits continued
202 4 | 202 3 | |||||
| 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) |
202 4 | 202 3 | |||||
| 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 pensions 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) |
202 4 | 202 3 | |
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 |
202 4 | 202 3 | |
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
109
21 Post-retirement benefits continued
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 |
202 4 | 202 3 | |||||
| UK | Overseas | Overseas | ||||
schemes | schemes | Total | UK 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 employe r | 1 | 73 | 74 | – | 69 | 69 |
Contributions by employe es | – | 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 |
2024 | 2023 | |||||
| UK | Overseas | Overseas | ||||
schemes | schemes | Total | UK 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) portfolio s 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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
110
21 Post-retirement benefits continued
| 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 | Obligation s | (25) | (30) |
One year increase in life expectancy | Obligation s | (125) | (155) |
Equity | ||
| Ordinary | ||
| shares of | Nominal | |
| 20p each | value | |
Millions | £m | |
At 1 January and 31 December 2023 | 1,6 91 | 338 |
At 31 December 2024 | 1,691 | 338 |
23 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 payment transactions | 95 | 50 |
Total cost recognised for cash - settled share - based payment transactions | 41 | 17 |
Share - based payments recognised in the consolidated income statement | 136 | 67 |
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 101 to 110 of Rolls-Royce Holdings
plc 2024 Annual Report. The equity-settled share based payment plans are operated by Rolls-Royce Holdings plc.
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
111
23 Share-based payments continued
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 202 3 | 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:
202 4 | 202 3 | |
Free Sha r es | 494p | – |
Long - term incentive plan | 361 p | 216p |
I ncentive p lan | 378 p | 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).
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
112
24 Contingent liabilities continued
| 2024 | 2023 | |
£m | £m | |
Sale 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 |
| 2024 | 2023 | |
£m | £m | |
Salaries and short - term benefits | 29 | 25 |
Post - retirement schemes | 1 | – |
Share - based payments | 13 | 15 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
113
| 2024 | |
Proceeds | £m |
Net cash consideration at prevailing exchange rate and at effective hedged rate | 62 |
Cash flow on disposal of business per cash flow statement | 62 |
2024 | |
£m | |
Intangible assets | 49 |
Inventory | 4 |
Provision for liabilities and charges | (6) |
Contract Liabilities | (4) |
Post - retirement scheme deficits | (1) |
Less: Net asses disposed | 42 |
| 2024 | |
£m | |
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 |
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 |
Notes to the Consolidated Financial Statements Rolls-Royce plc Annual Report 2024
114
27 Derivation of summary funds flow statement
202 4 | 202 3 | |||||
| Impact | Impact of | |||||
| of | Impact of | other non- | ||||
| Cash | hedge | acquisition | underlying | Funds | Funds | |
flow | book | accounting | items | flow | flow | |
£m | £m | £m | £m | £m | £m | |
Operating profit/(loss) | 2,906 | (191) | 45 | (296) | 2,464 | 1,590 |
(Profit)/loss on disposal of property, plant and equipment 1 | 32 | – | – | – | 32 | 18 |
(Profit)/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 | (5 6 ) | (56) | – | (55) | ( 167 ) | (258) |
Increase 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 | 522 | (341) | – | (17) | 164 | (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 | 6 6 |
Other 1 | – | (5) | – | – | (5) | (7) |
Income tax | (381) | – | – | – | (381) | (172) |
Cash from operating activities | 3,7 80 | (24) | – | 106 | 3,8 62 | 2, 53 1 |
Capital element of lease payments | (2 99 ) | 24 | – | – | (2 75 ) | (270) |
Capital expenditure | (87 6 ) | – | – | – | (87 6 ) | (695) |
Investment s | 16 | – | – | – | 16 | 69 |
Interest paid | (298) | – | – | – | (298) | (333) |
Other (M&A, restructuring and financial penalties paid) | 100 | – | – | (106) | (6) | (17) |
Free cash flow | 2,423 | – | – | – | 2,423 | 1, 28 5 |
1 Included in other operating cash flows in the summarised free cash flow on page 20
2 Included in working capital (excluding Civil LTSA balance) in the summarised free cash flow on page 20
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 163.
Company Financial Statements Rolls-Royce plc Annual Report 2024
115
COMPANY BALANCE SHEET
At 31 December 2024
202
4
202
3
Notes
£m
£m
ASSETS
Intangible assets
3
2,336
2,233
Property, plant and equipment
4
1,543
1,591
Right
-
of
-
use assets
5
130
146
Investments
-
subsidiary undertakings
6
1,461
1,473
Investments
-
joint ventures and associates
6
52
36
Investments
-
o
ther
6
5
31
Loan receivable from subsidiary undertaking
6,8
1,552
1,699
Other financial assets
14
127
330
Deferred tax assets
1
6
2,949
2,198
Post
-
retirement schemes surplus
1
7
779
767
Non
-
current assets
10,934
10,504
Inventories
7
2,494
2,326
Trade receivables and other assets
8
8,194
7,931
Contract assets
9
1,134
749
Taxation
recoverable
2
2
Other financial assets
1
4
291
84
Cash and cash equivalents
10
4,981
3,085
Current assets
17,096
14,177
TOTAL ASSETS
28,030
24,681
LIABILITIES
Borrowings and lease liabilities
1
1
(848)
(520)
Other
financial liabilities
1
4
(621)
(426)
Trade payables and other liabilities
1
3
(
11,421
)
(9,908)
Contract liabilities
9
(
4,209
)
(4,227)
Current tax liabilities
(7)
(2)
Provisions for liabilities and charges
1
5
(285)
(320)
Current liabilities
(1
7
,
391
)
(15,403)
Borrowings and lease liabilities
1
1
(2,895)
(3,715)
Other financial liabilities
1
4
(1,576)
(1,939)
Trade payables and other liabilities
1
3
(
1,872
)
(1,770)
Contract liabilities
9
(7,
244
)
(6,084)
Deferred tax liabilities
1
6
(195)
(269)
Provisions for liabilities and charges
1
5
(1,165)
(1,273)
Non
-
current liabilities
(1
4,
947
)
(15,050)
TOTAL LIABILITIES
(32,33
8
)
(30,453)
NET LIABILITIES
(4,30
8
)
(
5,772
)
EQUITY
Called
-
up share capital
18
338
338
Share premium
631
631
Other reserves
182
183
Accumulated losses
(5,4
59
)
(6,924)
TOTAL EQUITY
(4,30
8
)
(5,772)
Profit
for the year
1,278
2,185
The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the parent company income
statement.
The Financial Statements on pages 115 to 143 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: 01003142
Company Financial Statements Rolls-Royce plc Annual Report 2024
116
COMPANY STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2024
202
4
202
3
Notes
£m
£m
P
rofit
for the year
1
,27
8
2,185
Other comprehensive income/
(
expense
)
(OCI)
Actuarial movement in post
-
retirement schemes
17
(
5)
152
Revaluation to fair value of other investments
6
(
2
)
(4)
Related tax movements
16
6
8
(54)
Items that will not be reclassified to profit or loss
6
1
94
Movement on fair values
debited
to hedging reserves
(
17)
(82)
Reclassified to income statement from cash flow hedge reserve
22
61
Foreign exchange translation differences on foreign operations
(5)
–
Related tax movements
16
(1)
5
Items that will be reclassified to
profit or loss
(1)
(16)
Total other comprehensive income
60
78
Total comprehensive income
for the year
1,33
8
2,263
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2024
Share
capital
Share
premium
Other
reserves ¹
Accumulated
losses
Total
equity
Note £m £m £m £m £m
At 1 January 202
3
338
631
199
(9,264)
(8,096)
Profit for the year
–
–
–
2,185
2,185
Actuarial movement in post
-
retirement schemes
17
–
–
–
152
152
Reclassified to income statement from cash flow hedge
reserve
–
–
61
–
61
Fair value on movement on cash flow hedges
–
–
(82)
–
(82)
Revaluation to fair value of other investments
6
–
–
–
(4)
(4)
Related tax movements
1
6
–
–
5
(54)
(49)
Total comprehensive income
/(expense)
for the year
–
–
(16)
2,279
2,263
Share
-
based payments
–
direct to equity
2
19
–
–
–
39
39
Related tax movements
1
6
–
–
–
22
22
Other changes in equity in the year
–
–
–
61
61
At 31 December 2023
338
631
183
(6,924)
(5,772)
At 1
January
202
4
338
631
183
(6,924)
(5,772)
Profit for
the year
–
–
–
1,27
8
1,27
8
Actuarial movement in post
-
retirement schemes
17
–
–
–
(5)
(5)
Reclassified to income statement from cash flow hedge
reserve
–
–
22
–
22
Fair value on movement on cash flow hedges
–
–
(17)
–
(17)
Revaluation to fair value of other investments
6
–
–
–
(
2
)
(
2
)
Foreign exchange translation differences on foreign
operations
–
–
(5)
–
(5)
Related tax movements
16
–
–
(1)
68
67
Total comprehensive
(expense)/i
ncome
for the year
–
–
(1)
1,33
9
1,33
8
Share
-
based payments
–
direct to equity
2
19
–
–
–
60
60
Related tax movements
16
–
–
–
66
66
Other changes in equity in the year
–
–
–
1
26
1
26
At 31 December
2024
338
631
182
(5,4
59
)
(4,3
0
8)
1 Other reserves includes a translational reserve of £(1)m (2023: £4m) and £159m (2023: £159m) relating to the premium which arose on shares issued on a 1989 acquisition. This also includes the
cash flow hedge reserve of £18m (2023: £14m)
2 Share-based payments ‒ direct to equity is the share-based payment charge for the year less the actual cost of vesting excluding those vesting own shares and cash received on share-based
schemes vesting
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
117
1 Accounting policies
The Company
Rolls-Royce 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 Company’s registered number is 01003142 and its registered address is at Kings Place, 90 York Way, London, N1 9FX,
United Kingdom.
Basis of preparation
In preparing these financial statements, the Company applies the recognition, measurement and disclosure requirements of International Financial
Reporting Standards 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 the following FRS 101 disclosure exemptions:
– IAS 7 Statement of Cash Flows;
– IFRS 2 Share Based Payment in respect of group settled share-based payments;
– in respect of transactions with wholly owned subsidiaries;
– IFRS 7 Financial Instruments: Disclosures;
– the requirements of paragraphs 30 and 31 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors;
– IFRS 16 Leases (exemptions from requirement to present leases information in a single note/separate section in the accounts and from
disclosing a maturity analysis of lease liabilities);
– comparative period reconciliations for share capital, investments, property, plant and equipment, intangible assets and additional comparative
information as required by IAS 1 Presentation of Financial Statements; and
– in respect of the compensation of key management personnel.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Financial Statements.
The 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, the disclosure of non-audit fees information is not included in respect of the Company.
For details of audit fees, see note 6 of the Consolidated Financial Statements.
These Financial Statements have been prepared on a going concern basis. Further details are given in the Going Concern Statement on page 40.
After due consideration, the Directors consider that the Company has sufficient liquidity to continue in operational existence for a period of at
least 18 months from the date of this report and are therefore satisfied that it is appropriate to adopt the going concern basis of accounting in
preparing the Financial Statements.
In preparing the Company Financial Statements, the Directors have considered the potential impact of climate change, please see pages 58 to
60 for further details.
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 Company’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 95 in relation to the value of trade
payables that were within the scope of the Company offered SCF scheme. This has been presented alongside the value of received payments which
suppliers had drawn, this being information which the Company has previously disclosed in its Annual Reports.
Other
There are no other new standards or interpretations issued by the International Accounting Standards Board (IASB) that had a significant impact on
these Financial Statements.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
118
1 Accounting policies continued
Material accounting policies
The Company’s material accounting policies are set out below. These accounting policies have been applied consistently to all periods presented
in these Financial Statements.
Key areas of judgement and sources of estimation uncertainty are disclosed below and further details, together with sensitivities, are included
within the significant accounting policies section where applicable.
Revenue recognition and contract assets and liabilities
Revenue recognised comprises sales to the Company’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 rely on the key estimates highlighted below. Refund liabilities where sales are made to customers
with a right of return are not typical in the Company’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 Company 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 division) 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 Company generates a significant portion of its revenue and profit on aftermarket arrangements arising from the installed OE fleet. As a
consequence, in particular in the Civil Aerospace large engine business, the Company 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 accounting policy are:
– Future variable revenue from long-term contracts is constrained to take account of the risk of 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
Company, most significantly USD transactions. These are translated at estimated long-term exchange rates.
– A contract asset/liability is recognised where payment is received in arrears/advance of the costs incurred to meet 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 119) are recorded as an expense and excluded from the measure of progress of
LTSA contracts.
– The Company recognises a liability for its obligation to repurchase parts it has sold to the maintenance, repair and overhaul bases who
overhaul the Company’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 Company 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.
Key judgement – Whether Civil Aerospace OE and aftermarket contracts should be combined
In the Civil Aerospace division, 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 Company generates a significant proportion of its revenue from aftermarket arrangements. These aftermarket contracts, such as TotalCare
agreements in the Civil Aerospace division, cover a range of services and generally have contractual terms covering more than one year.
Under these contracts, the Company’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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
119
1 Accounting policies continued
Revenue recognition (continued)
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 Company 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 Company 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 15.
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 Company 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
Company’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 Company’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 21 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
Company 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 Company 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 Company in the future does not
consist of identified assets and the provider retains a substantive right to substitute the asset through the Company’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 Company. These sales contributed £399m (2023: £578m) to revenue for the year.
Key estimate – Estimates of future revenues, including customer pricing, and costs of long-term contractual arrangements including the
impact of climate change
The Company has long-term contracts that fall into different accounting periods and which can extend over significant periods. 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 Company 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, influenced by assumptions over the recovery
of the civil aviation industry. Finally, many of the revenues and costs are denominated in currencies other than that of the Company. 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 £10m (2023: adverse catch-up adjustment of £188m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
120
1 Accounting policies continued
Revenue recognition (continued)
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 £15m. 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 £295m.
– 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 £60m.
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 for 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 Company 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.
Key judgement – Determination of the nature of entry fees received
RRSAs with key suppliers (workshare partners) are a feature of the civil aviation industry business. 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 it 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 judged by the Company to be a contribution towards the development expenditure incurred. 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 122.
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. The deferred tax liability on the pension scheme
surplus is recognised consistently with the basis for recognising the rate applicable to refunds from a trust.
Tax is charged or credited in 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 Company 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 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 Company’s tax position can be found on pages 137 to
138.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
121
1 Accounting policies continued
Taxation recognition (continued)
Foreign currency translation
Transactions denominated in currencies other than the functional currency of the Company 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 sterling at the rate prevailing at the year end. Exchange differences arising on foreign exchange transactions and the retranslation of assets
and liabilities into sterling at the rate prevailing at the year-end are included in profit/(loss) before taxation.
The trading results of the Company are translated into sterling at the average exchange rates for the year. The assets and liabilities of foreign
operations 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.
Financial instruments – Classification and measurement
Financial assets primarily include trade receivables, cash and cash equivalents, short-term investments, derivatives (foreign exchange, commodity
and interest rate contracts), and listed and unlisted investments.
– Trade receivables and amounts due from subsidiary and parent undertakings 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 Company may sell trade receivables due from certain customers before 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 and short-term deposits)
and short-term investments are subject to low market risk. Cash balances, short-term deposits (with a maturity of primarily three month 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 other investments are measured at FVPL. The Company elected to measure its listed investment at FVOCI.
Financial liabilities primarily consist of trade payables, amounts due from group undertakings, borrowings, derivatives, and financial RRSAs.
– Derivatives are classified and measured at FVPL.
– All other financial liabilities are classified and measured at amortised cost.
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 £594m is not recognised in respect of UK tax losses. Further details
are included in note 16.
In addition to taking into account a severe but plausible downside forecast (see below), the climate-related estimates and assumptions (set out
on pages 58 to 60) 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 16, 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 58 to 60 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 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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
122
1 Accounting policies continued
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 Company 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 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 Company’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 Company has
chosen to not apply hedge accounting in respect of these exposures.
The Company 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 of the Consolidated Financial Statements.
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 in the income statement in the same period
or periods during which the hedged cash flows affect profit or loss. Any ineffectiveness in the hedging relationships is included in the income
statement.
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.
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 Company. 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 over a maximum of 15 years. 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 where costs incurred on an internal programme development meet the criteria for
capitalisation
The Company incurs significant research and development expenditure in respect of various development programmes. Determining when
capitalisation should commence and cease is a critical judgement, as is the determination of when subsequent expenditure on the programme
assets should be capitalised. During the year, £200m (2023: £186m) of development expenditure was capitalised.
Within the Company, there are established processes in place e.g. the Product Introduction and Lifecycle Management process (PILM). Within
these processes, the technical feasibility, the commercial viability and financial assessment of the programme is assessed at certain milestones.
When these are met, development expenditure is capitalised. Prior to this, expenditure is expensed as incurred.
The Company 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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
123
1 Accounting policies continued
Research and development (continued)
Subsequent expenditure after entry into service, which enhances the performance of the engine and the economic benefits to the Company
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 period of
operation of the engine by its initial operator.
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 to reflect the expected useful lives of the assets. 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 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.
Investment in subsidiaries, joint ventures and associates
Investments in subsidiaries, joint ventures and associates are held at cost less accumulated depreciation.
Joint arrangements
The Company accounts for joint operations by consolidating their results on a proportional basis.
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 and 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 Company’s professional advisors:
freehold buildings – five to 50 years (average 26 years); and
no depreciation is provided on freehold land.
– Plant and equipment – five to 20 years (average 12 years).
– Aircraft and engines – five to 20 years (average 13 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 Company under residual value guarantees;
– the exercise price of a purchase option if the Company is reasonably certain to exercise that option; and
– payments of penalties for termination of the lease, if the lease term reflects the Company exercising that option.
Where leases commence 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 Company’s incremental borrowing rate is used, being the rate that the Company 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 Company, 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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
124
1 Accounting policies continued
Leases (continued)
Key judgement – Determining the lease term
In determining the lease term, the Company 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 there are no renewal
dates for any of the most significant property leases in the next 12 months. The most significant renewal is in 2038. The Company reviews its
judgements on lease terms annually, including the operational significance of the site, especially where utilised for manufacturing activities.
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. Intangible assets
not yet available for use are tested for impairment annually. Other intangible assets (including programme-related intangible assets), property,
plant and equipment 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 recognised as an expense. The recoverable amount is the higher of value in use or fair value less costs of disposal,
if this is readily available. 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.
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 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 Company’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. Where the Company 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 Company’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 Company 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 SCF, the related payables are retained on the Company’s balance sheet and classified as trade payables. Further
details are disclosed in note 10.
Provisions
Provisions are recognised when the Company has a present obligation as a result of a past event, and it is probable that the Company will be
required to settle that obligation and 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 119; and
– transformation and restructuring when the Company has approved a detailed and formal restructuring plan, and the restructuring has either
commenced or has created a valid expectation to those affected.
Key judgement – Whether any costs should be treated as wastage
As described further on page 119, in rare circumstances, the Company 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
Company 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, a provision has been made as the Company 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 Company 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 Company incurring significant costs in the form of replacement parts and customer claims. Given the significant
activities of the Company 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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
125
1 Accounting policies continued
Provision (continued)
Key judgement – Whether the criteria to recognise a transformation and restructuring provision have been met
On 17 October 2023, the Company 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 Company’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 Company has provisions for onerous contracts at 31 December 2024 of £1,384m (2023: £1,441m).
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 in the calculation of discount rates
The onerous contract provisions are sensitive to changes in the discount rate used to value the provision. 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 contract. The forecast rates are determined from third-party market analysis
and average 5%. A 1% change in the discount rate used could lead to around a £40m to £50m change in the provision.
Insurance contracts and financial guarantees
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 or its joint ventures 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 assessed the probability of losses on its financial and performance guarantees and has determined that the probability is remote
after consideration of forward-looking triggers and as such the estimated liability is immaterial. As a result, as the estimated liability is immaterial
at 31 December 2024, no liability has been recognised in the Company Financial Statements.
At 31 December 2024, financial guarantees amounted to £1,350m (2023: £1,336m) and performance guarantees amounted to £2,208m (2023:
£1,722m). 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). No amounts (2023: no amounts) are included
in the financial statements for contracts within the scope of IFRS 17 Insurance Contracts as the probability-weighted estimated fulfilment cash
flows are immaterial. The amounts disclosed above are consistent with the information provided to key management personnel to enable
consideration of the company's exposure to risk and includes the default cash flows in relation to performance guarantees, guaranteed lease
rentals, trade finance balances and the present value of lease related decommissioning costs.
Customer financing support
In connection with the sale of its products, the Company 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 143, the
Directors consider the likelihood of crystallisation in assessing whether provision is required for any liabilities.
The Company’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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
126
1 Accounting policies continued
Post-retirement benefits
Pensions and similar benefits are accounted for under IAS 19 Employee Benefits.
For defined benefit plans, obligations are measured at discounted present value whilst plan assets are recorded at fair value. Surpluses in schemes
are recognised as assets only if they represent economic benefits available to the Company 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 respectively 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 defined benefit obligation
The Company’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 surplus of £779m before
deferred taxation being recognised on the balance sheet at 31 December 2024 (2023: £767m). 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 17.
Share-based payments
The Company provides share-based payment arrangements to certain employees, which are settled in Rolls-Royce Holdings plc shares. 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 of market-based
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.
Post balance sheet events
The Company has taken the latest legal position in relation to any ongoing legal proceedings and reflected these in the 2024 results as
appropriate.
2 Employee information and emoluments of Directors
The total amount of remuneration paid to Directors for the year ended 31 December 2024 was £8,822,558 (2023: £11,891,000). £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 four Directors (2023: five), which totalled £352,679 (2023: £330,000). No Directors exercised share options during the year (2023: none)
and three Directors received vested shares under the long-term incentive plan (2023: none). No Director received payments for loss of office
which (2023: £483,000).
No Director accrued any retirement benefits in the year (2023: none).
The aggregate employment costs were as follows:
2024 2023
£m
£m
Wages, salaries and benefits
957
947
Social security costs
138
117
Share
-
based
payments (note 19)
6
0
39
Pensions and other post
-
retirement scheme benefits
174
1
44
Employment costs
1,3
29
1,247
The monthly average number of persons employed by the Company during the year was 15,700 (2023: 15,600), of which 15,300 (2023: 15,200)
were based in the United Kingdom.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
127
3 Intangible assets
Development
costs
£m
Certification
costs
£m
Software
and other
1
£m
Total
£m
Cost
At 1 January
2024
2,247
899
1,125
4,271
Additions
200
–
74
274
Disposals
–
–
(57)
(57)
At 31 December
202
4
2,447
899
1,142
4,488
Accumulated amortisation and impairment
At 1 January
2024
820
452
766
2,038
Charge for the year
2
73
26
71
170
Disposals
–
–
(56)
(56)
At 31 December
202
4
893
478
781
2,152
Net book value
At 31 December
202
4
1,554
421
361
2,336
At 31 December 2023
1,427
447
359
2,233
1 Includes £89m (2023: £88m) of software under course of construction which is not amortised
2 Charged to cost of sales and commercial and administrative costs except development costs, which are charged to research and development
At 31 December, the Company had expenditure commitments for software of £15m (2023: £25m).
The carrying amount and the residual life of the material intangible assets for the Company are as follows:
Residual life
1
Net book value
2024
£m
2023
£m
Trent programme intangible assets
2
One
to 15
years
2,001
1,920
1 Residual life reflects the remaining amortisation period of those assets where amortisation has commenced. As per page 123, 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
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 changes with an
adverse effect on a programme and by analysing latest management forecasts against those prepared in 2023 to identify any deterioration in
performance.
The Company believe there are significant business growth opportunities to come from Rolls-Royce playing a leading role in the transition to net
zero, whilst at the same time climate change poses potentially significant risks. The assumptions used by the Directors are based on past
experience and external sources of information. The main climate-related areas that have been considered are the risk that regulatory changes
could materially impact demand for its products (and hence the utilisation of the products whilst in service and their useful lives) and shifting
investment focus towards more sustainable products and solutions. Based on the climate scenarios prepared, the forecasts do not assume a
significant deterioration of demand for Civil Aerospace programmes given that all commercial aero-engines are compatible with 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 emissions 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.
Where a trigger event has been identified, an impairment test has been carried out. Where an impairment test was required this was performed
on the following basis:
– The carrying values of assets in their current condition 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 underlying 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.
There have been no (2023: none) individually material impairment charges or reversals recognised during the year.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
128
4 Property, plant and equipment
Land and
buildings
£m
Plant and
equipment
£m
Aircraft and
engines
£m
In course of
construction
£m
Total
£m
Cost or valuation
At 1 January
2024
907
2,482
218
90
3,697
Additions
3
47
5
73
128
Acquisition of
businesses
1
5
–
–
6
Reclassifications
1
6
35
(1)
(40)
–
Reclassifications
from
right
-
of
-
use assets
11
–
–
–
11
Disposals/write
-
offs
(10)
(67)
(8)
–
(85)
Exchange differences
–
(1)
–
–
(1)
At 31 December
202
4
918
2,501
214
123
3,756
Accumulated depreciation
At 1 January
2024
341
1,689
76
–
2,106
Charge for the year
2
35
126
21
–
182
Impairment
3
1
–
–
–
1
Disposals
/write
-
offs
(7)
(64)
(5)
–
(76)
At 31 December
202
4
370
1,751
92
–
2,213
Net book value
At 31 December
202
4
548
750
122
123
1,543
At 1 January 2024
566
793
142
90
1,591
1 Includes reclassifications from assets under construction into the other categories of property, plant and equipment when the assets become available for use.
2 Depreciation is charged to cost of sales or commercial and administrative costs or included in the cost of inventory as appropriate
3 The carrying values of property, plant and equipment have been assessed during the period 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 assumptions in note 3. Land and buildings are generally used
across multiple programmes and are considered based on future expectations of the use of the site, which includes any implications from climate-related risks as explained in
note 3. As a result of this assessment, there are no individually material impairment charges or reversals in the year
Property, plant and equipment includes:
2024
£m
2023
£m
Capital expenditure commitments
62
54
Cost of fully depreciated assets
1,125
1,056
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
129
5 Right-of-use assets
Land and
buildings
£m
Plant and
equipment
£m
Aircraft
and
engines
£m
Total
£m
Cost
At 1 January
2024
143
116
21
280
Additions/modifications of leases
–
41
–
41
Acquisition of businesses
1
–
–
1
Disposals
(7)
(8)
–
(15)
Reclassifications to PPE
(11)
–
–
(11)
At 31 December
2024
126
149
21
296
Accumulated depreciation and impairment
At 1 January
2024
63
61
10
134
Charge for the year
11
29
5
45
Disposals
(5)
(8)
–
(13)
At 31 December
2024
69
82
15
166
Net book value
At 31 December
2024
57
67
6
130
At 31 December 2023
80
55
11
146
Right
-
of
-
use assets held for use in operating leases
Cost
16
–
21
37
Depreciation
(6)
–
(1
5
)
(
21
)
Net book value at 31 December
2024
1
0
–
6
16
6 Investments
Subsidiary
undertakings
1,2
Joint ventures
and associates
1
Other
investments
3
Shares at cost
£m
Shares at cost
£m
Total
£m
At 1 January
2024
1,473
36
31
Additions
4
10
16
–
Revaluation of investment
s
accounted for at FVOCI
5
–
–
(
2
)
Revaluation of other investments accounted for at FVTPL
6
–
–
(
24
)
Impairment
7
(22)
–
–
At 31 December
2024
1,461
52
5
1 Subsidiary and joint venture undertakings and associates are listed on pages 144 to 149. The Company has uncalled share capital in Nightingale Insurance Limited, one of its
subsidiaries at 31 December 2024 of £30m (2023: £30m)
2 In 2023, an interest-bearing outstanding loan to Vinters International Limited, one of its subsidiaries, was presented alongside investment shares at cost as it was considered to
be part of the capital funding of the subsidiary undertaking. Due to a significant repayment receipt in the year, with future additional repayments expected, this receivable balance
of £1.6bn (2023: £1.7bn) has been disclosed as part of amounts owed by subsidiary undertakings in note 8. It is no longer considered to be part of capital funding.
3 Other investments includes unlisted investments of £nil (2023: £24m) and listed investments of £5m (2023: £7m)
4 Subsidiary additions of £10m in the year relate to the capitalisation of an intercompany loan. Additions to investments in joint ventures and associates of £16m relate to the joint
venture, Beijing Aero Engine Services Company Limited
5 The Company has elected to value the listed investments at fair value through other comprehensive income
6 The Company wrote down the value of an unlisted investment of £24m to £nil in the year. This charge was recognised within net financing
7 The impairment of subsidiary undertakings in the year has arisen as a result of the carrying value of the investment being found to be less than the recoverable amount
7 Inventories
2024
£m
2023
£m
Raw materials
65
33
Work in progress
7
26
728
Finished goods
1,
703
1,565
2,49
4
2,326
Inventories stated at net realisable value
118
124
Amount of inventory write
-
down
24
9
Reversal of
inventory write
-
down
–
14
Inventories are stated after provisions for impairment of £234m (2023: £216m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
130
8 Trade receivables and other assets
Current Non-current
1
Total
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Trade receivables
1,476
1,358
138
40
1,614
1,398
Prepayments
487
624
24
25
511
649
RRSA prepayment for LTSA parts
2
486
235
1,
182
1,085
1,668
1,320
Receivables due on RRSAs
1,118
1,159
119
193
1,237
1,352
Amounts owed by:
Subsidiary undertakings
995
1,176
1,
993
475
2,988
1,651
Joint ventures
778
667
–
8
778
675
Parent undertaking
3
–
–
337
337
337
337
Other taxation and social security
receivable
131
99
–
25
131
124
Costs to obtain contracts with customers
4
1
–
–
1
1
1
Other receivables
5
426
388
55
36
481
424
5,
898
5,706
3,
848
2,225
9,746
7,931
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 relate to amounts not expected to be received in the next 12 months, in line with specific customer payment arrangements, including customers on payment plans,
or formal payment terms on balances with related undertakings. Included within non-current is the Vinters International Limited loan principal and interest receivable of £1.6bn
(2023: £1.7bn), which is presented on the face of the balance sheet as loan receivable from subsidiary undertakings. In 2023, the loan balance was presented within note 6 as it
was considered to be part of capital funding of the subsidiary undertaking. Due to a significant repayment receipt in the year, with future additional repayments expected, the
receivable balance has been disclosed as part of amounts owed by subsidiary undertakings. It is no longer considered to be part of capital funding
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 Amounts due from parent undertakings are interest free and repayable on demand. Whilst the Company could demand repayment, the Directors consider that the intention would
be to not call upon this balance for repayment in the next 12 months but is expected to be settled within the normal operating cycle
4 These are amortised over the term of the related contract in line with engine deliveries, resulting in no amortisation (2023: £2m) in the year. There were no
impairment losses (2023: none)
5 Other receivables include unbilled recoveries relating to completed overhaul activity where the right to consideration is unconditional
All amounts owed by subsidiary undertakings (except those listed below) are unsecured, interest free, have no fixed date of repayment
and are repayable on demand.
– €8m (£7m) balance receivable from Europea Microfusioni Aerospaziali Spa (2023: €nil (£nil)). This is interest free and has a
repayment date of 31 March 2025.
– US$6m (£4m) balance receivable from Yocova Private Limited (2023: US$nil (£nil)). This is interest free and has a repayment
date of 31 March 2025.
– €5m (£4m) balance receivable from Aero Gearbox International SAS (2023: €3m (£2m)). This incurs interest at the higher of
EURIBOR + 0.5%, and 0%, and has a repayment date of 30 September 2025.
– €7m (£6m) balance receivable from Europea Microfusioni Aerospaziali Spa (2023: €11m (£10m)). This incurs interest at 8% and
has a repayment date of 16 June 2026.
– US$525m (£419m) balance receivable from Rolls-Royce Overseas Investments Limited (2023: US$578m (£455m)). This incurs
interest at US Federal Reserve rate + 3.18% and has a repayment date of 31 December 2026.
– €12m (£10m) balance receivable from Europea Microfusioni Aerospaziali Spa (2023: €nil (£nil)). This is interest free and has a
repayment date of 31 December 2027.
– €11m (£9m) balance receivable from Aerospace Transmission Technologies GmbH (2023: €11m (£10m)). This incurs interest at
EURIBOR + 2% and has a repayment date of 31 December 2037.
– £1.5bn balance receivable from Vinters International Limited (2023: £1.6bn). This incurs interest at aggregate of term SONIA +
0.35% and has a repayment date of 25 May 2031.
The ECLs on amounts due to group undertakings reduced to £3m (2023: £5m). The assumptions and inputs used for the estimation of
the allowance takes into account their market credit ratings.
The ECLs for trade receivables and other financial assets have decreased by £5m to £158m (2023: decreased by £47m to £163m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
131
8 Trade receivables and other assets continued
The Company has adopted the simplified approach to provide for 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 assumptions and inputs used for the estimation of the ECLs are shown in the table below:
202
4
20
2
3
Trade
receivables
and other
financial
assets
Loss
allowance
Average
ECL
rate
Trade
receivables
and other
financial
assets
Loss
allowance
Average
ECL
rate
£m
£m
£m
£m
Credit rating C and above
1,
355
(
55
)
4
%
1,089
(68)
6%
Credit rating below C
–
–
0%
3
–
0%
Without credit rating
2,7
19
(
103
)
4
%
2,731
(95)
3%
4,074
(
158
)
4%
3,
82
3
(163)
4%
The movements of the Company’s ECLs provision are as follows:
2024
£m
2023
£m
At 1 January
(
163
)
(210)
Increases in loss allowance recognised in the income statement during the year
(
84
)
(56)
Loss allowance utilised
5
19
Releases of loss allowance previously provided
82
68
Exchange differences
2
16
At 31 December
(1
58
)
(163)
9 Contract assets and liabilities
Current Non-current
1
Total
2
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Contract
assets
Contract assets with customers
55
2
243
434
349
9
86
592
Participation fee contract assets
19
13
129
144
148
157
57
1
256
563
493
1,1
34
749
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 is 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 £869m (2023: £441m) of Civil Aerospace LTSA assets and £36m (2023: £87m) 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 £(36)m which reduced the contract asset (2023: £55m increased).
The decrease in the Defence balance is due to higher invoicing than revenue recognised in relation to the completion of performance
obligations on those contracts.
Participation fee contract assets have reduced due to amortisation. No impairment losses (2023: none) of contract assets have arisen
during the year.
The absolute value of expected credit losses for contract assets has increased by £6m to £11m (2023: decreased by £16m to £5m).
Current Non-current Total
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Contract liabilities
4,
209
4,227
7,
244
6,084
11,
453
10,311
During the year, £3,078m (2023: £2,511m) of the opening contract liability was recognised as revenue.
Contract liabilities have increased by £1,143m. The movement in the balance is largely as a result of increases in Civil Aerospace of
£1,130m. This is mainly as a result of growth in LTSA liabilities of £1,688m (2024: £9,053m, 2023: £7,365m) 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 £(46)m (2023: £243m increase) as a result of revenue
being recognised in relation to performance obligations satisfied in previous years.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
132
10 Cash and cash equivalents
2024
£m
2023
£m
Cash at bank and in hand
226
128
Money
-
market funds
1,
834
1,000
Short
-
term deposits
2,921
1,957
Cash and cash equivalents
4,981
3,085
Overdrafts (
note
11)
–
–
Balances are presented on a net basis when the Company 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 Company’s statement of
financial position as at 31 December 2024 and 2023.
11 Borrowings and lease liabilities
Current
Non
-
current
Total
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Unsecured
0.875% Notes 2024
€550m
1
–
475
–
–
–
475
3.625% Notes 2025 $1,000m
1
79
5
–
–
770
79
5
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
Total unsecured
79
5
475
2,764
3,559
3,55
9
4,034
Lease liability
–
Land and buildings
1
3
14
90
111
10
3
125
Lease
liability
–
Aircraft and engines
10
8
2
11
12
19
Lease liability
–
Plant and equipment
30
23
39
34
69
57
Total lease liabilities
5
3
45
131
156
18
4
201
Total borrowings and lease liabilities
848
520
2,895
3,715
3,743
4,235
Less than
one year
£m
Between
one and
five years
£m
After five
years
£m
Total
£m
At 31 December
202
4
Borrowings
79
5
2,764
–
3,55
9
Lease liabilities
5
3
80
51
18
4
848
2,844
51
3,743
At 31 December
202
3
Borrowings
475
3,559
–
4,034
Lease liabilities
45
102
54
201
520
3,661
54
4,235
All outstanding items described as 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 Company 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 Company 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 Company 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 Company 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 Company has undertaken to pay fixed rates of GBP interest, which form a cash flow
hedge.
During the period to 31 December 2024, the Company repaid a loan note of €550m in May 2024 in line with its maturity date.
The Company has access to the following undrawn committed borrowing facilities at the end of the year:
202
4
202
3
£m £m
Expiring within one year
–
–
Expiring after one year
2
,500
3,500
Total undrawn facilities
2
,500
3,500
At 31 December 2024, the Company had total undrawn facilities of £2.5bn (2023: £3.5bn).
In May 2024 the Company 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 Company extended the maturity date of its undrawn £2.5bn revolving credit facility by one year to November
2027, with the Company having the option to exercise a further one-year extension option, subject to the bank agreement at the time
of exercise.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
133
12 Leases
Leases as lessee
The net book value of lease right-of-use assets at 31 December 2024 was £130m (2023: £146m), with a lease liability of £184m (2023:
£201m) per notes 5 and 11, respectively. Leases that have not yet commenced to which the Company is committed have a future liability
of £nil. The Financial Statements include the following amounts relating to leases:
2024
£m
2023
£m
Land and buildings depreciation and impairment
(11)
(11)
Plant and equipment depreciation and impairment
(2
9
)
(24)
Aircraft and engines depreciation and impairment
(5)
(5)
Total depreciation and impairment for right
-
of
-
use assets
(4
5
)
(40)
The total cash outflow for leases in 2024 was £70m (2023: £57m). Of this £60m related to leases reflected in the lease liability, £10m to
short-term leases where lease payments are expensed on a straight-line basis and £nil 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.
Interest expense on lease liabilities in 2024 was £9m (2023: £6m).
Leases as lessor
The Company acts as lessor for engines to Civil Aerospace customers when they require engines to support their fleets. Lease
agreements with the lessee provide protection over the Company’s 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 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 Company can
confirm that appropriate insurance documentation is established that covers the engine assets to pre-agreed amounts. All such
contracts are operating leases. The Company also leases out a small number of properties, or parts of properties, where there is excess
capacity under operating leases.
Total non-cancellable future operating lease rentals receivables (undiscounted) of £4m (2023: £4m), are predominantly due after five
years.
In a limited number of circumstances, the Company 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 £30m
(2023: £28m). There was £nil (2023: £nil) finance income recognised during the year.
13 Trade payables and other liabilities
Current Non-current Total
2024
£m
2023
£m
2024
£m
2023
£m
2024
£m
2023
£m
Trade payables
736
803
–
–
736
803
Payables due on RRSAs
1,529
1,713
11
–
1,540
1,713
Amounts owed to:
Subsidiary
undertakings
5,156
4,598
–
–
5,15
6
4,598
Joint ventures and associates
471
530
–
–
471
530
Customer discounts
1
993
974
852
730
1,845
1,704
Accruals
2,2
28
929
8
9
81
2,317
1,010
Deferred receipts from RRSA workshare
partners
55
56
757
774
812
830
Government grants
2
19
23
3
11
22
34
Other taxation and social security
–
27
–
–
–
27
Other payables
3
2
34
255
1
60
174
394
429
11,421
9,908
1,872
1,770
1
3
,
293
11,678
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 118. 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 £12m (2023: £6m) of government grants were recognised in the income statement
3 Other payables includes payroll liabilities and HM Government levies
All amounts due to subsidiary undertakings (except those outlined below) are unsecured, interest free and are repayable on demand.
The Company is part of the Rolls-Royce group banking arrangements and the Company’s main bank accounts are subject to offset and
pooling arrangements with cash balances acquired from other group entities. As a result of these arrangements the balances are
presented as intercompany payables as funds are pooled by the Company on the last working day of the month with funds returned the
next day. The amounts owed by the Company of £1,561m as at 31 December 2024 (2023: £999m) are interest bearing and repayable on
demand.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
134
13 Trade payables and other liabilities continued
Other intercompany balances outstanding at 31 December 2024 were as follows:
– US$90m (£72m) balance payable to Rolls-Royce Canada Limited (2023: US$15m (£12m)). This incurs interest at 0.06% less than
the FED rate mid-point (2023: 0.06% less than the FED rate mid-point) and is repayable on demand.
– CAD 98m (£54m) balance payable to Rolls-Royce Canada Limited (2023: CAD 180m (£107m)). This incurs interest at 0.06% less
than the CORRA (2023: 0.06% less than the CORRA) and is repayable on demand.
– £81m balance payable to Nightingale Insurance Limited (2023: £81m). This incurs interest at 0.06% less than Bank of England
base interest rate (2023: 0.06% less than Bank of England base interest rate) and is repayable on demand.
– US$435m (£347m) balance payable to Rolls-Royce North America (USA) Holdings Co (2023: US$310m (£244m)). This incurs
interest at 0.06% less than the FED rate mid-point (2023: 0.06% less than the FED rate mid-point) and is repayable on demand.
– US$462m (£369m) balance payable to Rolls-Royce Power Systems AG (2023: US$345m (£271m)). This incurs interest at 0.06%
less than the FED rate mid-point (2023: 0.06% less than the FED rate mid-point) and is repayable on demand.
– €484m (£401m) balance payable to Rolls-Royce Power Systems AG (2023: €420m (£365m)). This incurs interest at EURIBOR +
0.1% (2023: EURIBOR + 0.1%) and is repayable on demand.
– €800m (£663m) balance payable to Rolls-Royce Deutschland Ltd & Co KG (2023: €600m (£521m)). This incurs interest at the
3-month EURIBOR rate + 0.1% (2023: 3-month EURIBOR rate + 0.1%) and is repayable on demand.
– NOK31m (£2m) balance payable to RR Electrical Norway (2023: NOK31m (£2m)). This incurs interest at 0.06% less the policy
rate published by Norges bank (2023: 0.06% less the policy rate published by Norges bank) and is repayable on demand.
All payables’ balances are repayable on demand as either no formal loan agreement is in place or no final due date set ‒ therefore all
remain in the current classification.
The carrying amounts of trade and other payables are considered to be the same as their fair values, due to their short-term nature.
The Group’s payment terms with suppliers vary on the products and services being sourced, the competitive global markets the Group
operates in and other commercial aspects of suppliers' relationships. Industry average payment terms vary between 90 to 120 days.
The Group offers reduced payment terms for smaller suppliers, 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 supply chain financing (SCF) programme in partnership with banks
to enable suppliers, including joint ventures, who are on standard 90-day payment terms to receive their payments sooner. The SCF
programme is available to suppliers at their discretion and does not change rights and obligations with suppliers nor the timing of
payment to 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 £159m (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 £2m (2023: £28m)
doing so with these costs included within the cost of sales.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
135
14 Other financial assets and liabilities
Details of the Company’s policies on the use of financial instruments are given in the accounting policies on page 121.
The fair values of other financial instruments held by the Company are as follows:
Foreign
exchange
contracts
£m
Commodity
contracts
£m
Interest
rate
contracts
1
£m
Total
derivatives
£m
Financial
RRSAs
£m
Other
£m
Total
£m
At
31
December 202
4
Current assets
1
38
5
148
2
91
–
–
2
91
Non
-
current assets
16
1
110
1
27
–
–
1
27
Assets
15
4
6
258
418
–
–
418
Current liabilities
(54
4
)
(18)
–
(56
2
)
(23)
(36)
(62
1
)
Non
-
current liabilities
(1,36
4
)
(2
3
)
(111)
(1,49
8
)
(77)
(1)
(1,57
6
)
Liabilities
(1,90
8
)
(4
1
)
(111)
(2,060)
(100)
(37)
(2,197)
(1,754)
(35)
147
(1,642)
(100)
(37)
(1,779)
At 31 December 202
3
Current assets
70
6
8
84
–
–
84
Non
-
current assets
76
–
254
330
–
–
330
Assets
146
6
262
414
–
–
414
Current liabilities
(357)
(10)
(13)
(380)
(18)
(28)
(426)
Non
-
current liabilities
(1,769)
(15)
(73)
(1,857)
(81)
(1)
(1,939)
Liabilities
(2,126)
(25)
(86)
(2,237)
(99)
(29)
(2,365)
(1,980) (19) 176 (1,823) (99) (29) (1,951)
1 Includes the foreign exchange impact of cross-currency interest rate swaps
Derivative financial instruments
The Company uses various financial instruments to manage its exposure to movements in foreign exchange rates. The Company 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 Company has currency derivatives designated as
part of a fair value or cash flow hedge. The Company 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
instruments
Commodity
instruments
Interest rate
instruments –
hedge accounted
1
Interest rate
instruments -
non-hedge
accounted
Total
£m
£m
£m
£m
£m
At 1 January
2024
(1,980)
(19)
45
131
(1,823)
Movements in fair value hedges
–
–
(
32
)
–
(
32
)
Movements in cash flow hedges
–
–
(
23
)
–
(
23
)
Movements in other derivative contracts
(478)
(
2
0)
–
40
(458)
Contracts settled
704
4
6
4
(
78
)
694
At
31 December 2024
(1,
754
)
(
35
)
54
93
(1,
642
)
1 Includes the foreign exchange impact of cross-currency interest rate swaps
Where applicable, market values have been used to determine fair values. Where market values are not available, fair values have
been calculated by discounting expected future cash flows at prevailing interest rates and translating at prevailing exchange rates.
Financial risk and revenue sharing arrangements (RRSAs) and other liabilities
The Company has financial liabilities arising from financial RRSAs. These financial liabilities 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 the discount rate.
Movements in carrying values is as follows:
Financial
RRSAs
Other -
liabilities
£m
£m
At 1 January
2024
(99)
(29)
Cash paid
17
–
Additions
–
(8)
Changes in forecast payments
(7)
–
Financing charge
(
7
)
–
Exchange adjustments
(
4
)
–
At 31 December
2024
(100)
(37)
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
136
15 Provisions for liabilities and charges
At 1 January
2024
£m
Charged to
income
statement
1
£m
Reversed
£m
Utilised
£m
At
31 December
2024
£m
Onerous contracts
1,441
5
39
(3
82
)
(2
14
)
1,384
Warranty and guarantees
12
4
(
3
)
–
13
Trent 1000 wastage costs
116
2
–
(82)
36
Transformation and restructuring
2
31
(6)
(26)
1
Other
22
1
–
(7)
16
1,593
5
77
(
391
)
(32
9
)
1,450
Current liabilities
320
285
Non
-
current liabilities
1,273
1,165
1 The charge to the income statement 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 £214m (2023: £164m) of the
provisions have been utilised. Additional contract losses for the Group of £539m (2023: £459m) 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 £382m (2023: £398m) previously recognised have been reversed following improvements to the forecast revenue, to
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 provisions for changes in the market and revises the provision
as required. The value of the remaining onerous contract provisions reflects, 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 primarily relate to products sold and are calculated based on an assessment of the remediation
costs related to future claims based on past experiences. 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.
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 £31m (2023: £2m) has been recorded and recognised in cost of sales and commercial and administration costs. During the
year £26m (2023: nil) has been utilised and £6m reversed (2023: nil) as part of these plans.
Other
Other items are individually immaterial and include provisions for employer liability claims of £3m (2023: £3m) as a result of historical
insolvency of a previous provider.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
137
16 Deferred taxation
Other tax credits/(charges)
OCI
Equity
Items that will not be
reclassified
Items that will be
reclassified
2024
£’m
2023
£’m
2024
£’m
2023
£’m
2024
£’m
2023
£’m
Deferred tax:
Movement in
post
-
retirement schemes
68
(54)
–
–
–
–
Cash flow hedge
–
–
(1)
5
–
–
Share
-
based payment
–
direct to equity
–
–
–
–
66
22
Other tax credits
/
(charges)
68
(54)
(1)
5
66
22
Deferred taxation assets and liabilities
The analysis of the deferred tax position is as follows:
2024
£m
2023
£m
Property, plant and equipment
12
8
198
Intangible assets
(4
09
)
(382)
Other temporary
differences
1
292
294
Pensions and other post
-
retirement scheme benefits
(195)
(269)
Foreign exchange and commodity financial assets and liabilities
42
5
412
Losses
2,4
72
1,443
Advance corporation tax
2
–
162
R&D credit
4
1
71
2,75
4
1,929
Unrecognised deferred tax assets
2024
£m
2023
£m
Advance on corporation tax
162
–
Foreign exchange and commodity financial assets and liabilities
26
69
Losses
594
1,627
782
1,696
Gross amount of losses and other deductible temporary differences for which no deferred tax has
been recognised on which there is no expiry
2024
£m
2023
£m
Foreign exchange and commodity financial assets and liabilities
103
275
Losses
2,
376
6,508
2,
479
6,783
1 Other temporary differences mainly relate to the deferral of relief for interest expenses and share-based payments expenses
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 dividend, which will prevent utilisation of the surplus
advance corporation tax balance
In addition to the gross balances shown above, advance corporation tax of £162m (2023: £nil) has not been recognised. Advance
corporation tax has no expiry.
The total deferred tax asset of £2,949m (2023: £2,198m) is made up as follows:
– £2,472m (2023: £1,443m) relating to tax losses;
– £425m (2023: £412m) arising on unrealised losses on derivative contracts;
– £nil (2023: £162m) of advance corporation tax; and
– £52m (2023: £181m) relating to other deductible temporary differences, in particular tax depreciation and relief for interest expenses.
2024
£m
2023
£m
At 1
January
1,
929
1,782
Amount
credited
to income statement
69
1
–
Amount
credited
to statement of OCI
67
174
Amount
credited
/(charged)
to equity
66
(49)
On acquisition of businesses
1
22
At 31 December
2,75
4
1,929
Deferred tax assets
2,94
9
2,198
Deferred tax liabilities
(195)
(269)
Deferred tax
2,7
54
1,929
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
138
16 Deferred taxation continued
The deferred tax assets have been recognised based on the expectation that the business will generate taxable profits and tax liabilities
in the future against which the losses and deductible temporary differences can be utilised.
Most of the 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 compatible with sustainable fuels, there is a risk that in the longer
term demand will shift towards more sustainable products and solutions;
– 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;
– the long-term forecast profit and cost profile of the other parts of the business; and
– consideration that the business returned to profitability in 2023.
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 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
Company has demonstrated that all the commercial aero engines it produces are compatible with sustainable fuels. The impact that this
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, a deferred tax asset of £2,949m has been recognised, which includes the recognition of a £1,033m deferred
tax asset relating to tax losses. This reflects the conclusions that:
– Based on current financial results and an improved outlook it is probable that the UK group 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
30-40 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
Company’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 Company 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 has
been enacted on 11 March 2024. The deferred tax liability on the 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 Company 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 Company has continued to apply the mandatory exception to 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 Company is able to control the timing of such remittances and it
is probable that consent will not be given in the foreseeable future.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
139
17 Post-retirement benefits
The Company operates a funded UK defined benefit scheme, with the assets held in a separate trustee administered fund. Employees
are entitled to retirement benefits based on either their final or career average salaries and length of service.
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 valuation of the defined benefit scheme is based on 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 Company 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 Company Financial Statements at 31 December 2024.
Amounts recognised in OCI in respect of defined benefit schemes
2024
£m
2023
£m
Actuarial gains and losses arising from:
Demographic assumptions
1
19
180
Financial assumptions
2
617
(132)
Experience adjustments
3
(8)
116
Return on scheme assets excluding financing income
2
(633)
(12)
(5)
152
1 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 interest rates 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 year
Amounts recognised in the balance sheet
in respect of defined benefit schemes
2024
£m
2023
£m
Present value of funded obligations
(
3,958
)
(4,537)
Fair value of
scheme assets
4,737
5,304
Net asset recognised in the balance sheet
–
Post retirement surplus
1
7
79
767
1 The surplus is recognised as on an ultimate wind-up when there are no longer any remaining members, any surplus would be returned to the Company, which has the power to
prevent the surplus being used for other purposes in advance of this event
Assumptions
Significant actuarial assumptions used at the balance sheet date were as follows:
2024
£m
2023
£m
Discount rate
5
.50%
4.50%
Inflation assumption (RPI)
3.30%
3.30%
Inflation assumption (CPI)
2.
90
%
2.85%
Transfer assumption (employed deferred/deferred)
20
%/
1
5%
35%/25%
Bridging Pension Option (BPO) assumption
(employed deferred/deferred)
40%/25
%
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.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
140
17 Post-retirement benefits continued
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.
Changes in present value of defined benefit obligations
2024
£m
2023
£m
At 1 January
(4,
537
)
(4,621)
Current service cost
–
(4)
Past
-
service
cost
(14)
–
Finance cost
(200)
(218)
Benefits paid out
165
142
Actuarial
gains
628
164
At 31 December
(3,958)
(4,537)
Funded schemes
(3,958)
(4,537)
The
defined benefit obligations are in respect of:
2024
£m
2023
£m
Active plan participants
1
(1,
277
)
(1,584)
Deferred plan participants
(1,
064
)
(1,287)
Pensioners
(1,
617
)
(1,666)
Weighted average duration of obligations (years)
1
4
16
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 Company retain
some additional benefits compared with other deferred members. The obligations for these members are shown as active plan participants
Changes in fair value of scheme assets
2024
£m
2023
£m
At 1 January
5,304
5,215
Administrative expenses
(5)
(4)
Financing
235
247
Return on plan assets excluding financing
(633)
(12)
Contributions by employer
1
–
Benefits paid out
(165)
(142)
At 31 December
4,737
5,304
Total return on plan
a
ssets
(398)
235
Fair value of scheme assets
2024
£m
2023
£m
Sovereign debt
3,335
3,259
Corporate debt instruments
1,860
1,996
Interest rate swaps
197
170
Inflation swaps
92
86
Cash and similar instruments ¹
(1,176)
(892)
Liability driven investment (LDI) portfolios ²
4,308
4,619
Unlisted equities
25
32
Synthetic equities
3
–
20
Corporate debt instruments
379
630
Other
25
3
At 31 December
4,737
5,304
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).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
141
17 Post-retirement benefits continued
Future contributions
The Company does not expect to contribute to its defined benefit scheme in respect of 2024 (2023: £nil).
In the UK, any cash funding of RRUKPF is based on a statutory triennial funding valuation process. The Company 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 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 Company.
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 have 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
£m
2023
£m
Reduction in discount rate of 0.25%
1
Obligation
(1
45
)
(185)
Plan assets (LDI portfolio)
179
204
Increase in inflation rate 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
(1
25
)
(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
Defined contribution schemes
The Company operates a number of defined contribution schemes. The total expense recognised in the income statement was £190m
(2023: £165m).
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
142
18 Share capital
Equity
ordinary
shares of
20p each
(m
illions
)
Nominal
value
£m
Authorised
At 1 January and 31 December 202
4
2,000
400
Issued and fully paid
At 1 January and 31 December 202
4
1,691
338
Rights, preferences and restrictions
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; to appoint one or more proxies or, if they are corporations, corporate
representatives; and to exercise voting rights. The ordinary shares are not listed.
19 Share-based payments
Effect of share-based payment transactions on the Company’s results and financial position
2024
£m
2023
£m
Total expense recognised for equity
-
settled share
-
based payment transactions
60
39
Share-based payment plans in operation during the year
During the year, the Company participated in the following share-based payment plans operated by Rolls-Royce Holdings plc:
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 companies 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).
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 range of exercise prices for the share options as at 31 December 2024 was 97p to 232p.
ShareSave (m
illions
)
Grant
-
vest
Expiry date (31
January)
Exercise price in
pence per share
option
202
4
202
3
2019
-
2025
2025
232
1.
6
1.
7
2021
-
2025
2025
97
29.8
30.7
3
1.4
32.4
The weighted average remaining contractual life for the cash settled options as at 31 December 2024 was one month (2023: one year)
as the majority of shares are due to vest in early 2025.
Notes to the Company Financial Statements Rolls-Royce plc Annual Report 2024
143
20 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 of its obligations under a two-year leniency agreement with Brazil’s
Comptroller General (CGU), signed in October 2021, relating to 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.
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.
21 Related party transactions
2024
£m
2023
£m
Sale of goods and services
1
7,500
6,528
Purchases of goods and services
1
(
8,350
)
(7,106)
Guarantees of joint arrangements’ and associates’ borrowings
–
2
Guarantees of non
-
wholly owned subsidiaries’ borrowings
4
3
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
The Company is a wholly owned subsidiary of its ultimate parent Rolls-Royce Holdings plc and is included within the consolidated results
of Rolls-Royce Holdings plc and therefore has taken advantage of the exemption in FRS 101 not to disclose related party transactions
with its parent company and other wholly owned group companies. The aggregated balances with joint ventures are shown in notes 8
and 13.
During the year, the Company transacted with its non-wholly owned subsidiary, Rolls-Royce SMR Limited:
2024
£m
2023
£m
Sales to Rolls
-
Royce SMR Limited
9
7
Receivables with Rolls
-
Royce SMR Limited
3
2
Payables to Rolls
-
Royce SMR Limited
–
(103)
22 Parent and ultimate parent company
The Company’s direct parent is Rolls-Royce Group Limited.
The ultimate parent undertaking and the smallest and largest group to consolidate these financial statements is Rolls-Royce Holdings
plc. Copies of the Rolls-Royce Holdings plc Consolidated Financial Statements can be obtained from the Company Secretary at Kings
Place, 90 York Way, London, N1 9FX, United Kingdom.
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2024
144
Subsidiaries
As at 31 December 2024, the companies listed below and on the following pages are indirectly held by Rolls-Royce plc, except those
indicated as being held directly by Rolls-Royce plc. The financial year end of each company is 31 December unless otherwise indicated.
| % of | ||||
| Class of | class | |||
Company name | Address | shares | held | |
| Aerospace Transmission Technologies | Adelheidstrasse 40, D-88046, Friedrichshafen, Germany | Capital Stock | 50 | |
GmbH * 1 | ||||
| Amalgamated Power Engineering | London 3 | Deferred | 100 | |
Limited 2 | Ordinary | 100 | ||
Bristol Siddeley Engines Limited * 2 | London 3 | Ordinary | 100 | |
Brown Brothers & Company, Limited 4 | Taxiway, Hillend Industrial Estate, Dalgety Bay, Dunfermline, | Ordinary | 100 | |
Fife, 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 | Zona Industriale AS1, 83040 Morra de Sanctis, Avellino, Italy | Ordinary | 100 | |
S.p.A. * | ||||
Heaton Power Limited 2 | London 3 | Ordinary | 100 | |
John Thompson Cochran Limited 2 | Taxiway, Hillend Industrial Estate, Dalgety Bay, Dunfermline, | 6% | 100 | |
| Fife, KY11 9JT, Scotland | Cumulative | |||
| 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 Ltd 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., | Building No. 2, No. 1633 Tianchen Road, Quingpu District, | Equity | 50 | |
Limited 1 | Shanghai, 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 Warsawa, Polska | 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, | Ordinary | 100 | |
Perdanakusuma, Jakarta, 13610, Indonesia | ||||
PT Rolls Royce Solutions Indonesia | Secure Building Blok B, Jl. Raya Protokol Halim, | Ordinary | 100 | |
Perdanakusuma, Jakarta, 13610, Indonesia | ||||
| Rolls-Royce (Ireland) Unlimited | Ulster International Finance, 1st Floor, IFSC House IFSC Dublin, | Ordinary | 100 | |
Company 2 | Dublin, Co. Dublin, D01R2P9, Ireland | |||
Rolls-Royce (Thailand) Limited | 989 | Floor 12A, Unit B1, B2, Siam Piwat Tower, Rama 1, | Ordinary | 100 |
Pathumwan, Bangkok, 10330, Thailand | ||||
| Rolls-Royce Aero Engine Services | London 3 | Ordinary | 100 | |
Limited * 2 | ||||
Rolls - Royce Australia Pty Limited | Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia | Ordinary | 100 | |
| Rolls-Royce Australia Services Pty | Suite 14.03, Level 14, 130 Pitt St, Sydney NSW 2000, Australia | Ordinary | 100 | |
Limited | ||||
Rolls-Royce Brasil Limitada * | Rua Jose Versolato, No. 111, Torre B, Sala 2502, Centro, São | Quotas | 100 | |
Bernando do Campo, Sao P ã ulo, 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, | Ordinary | 100 |
China | ||||
| 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 | Deloitte Centre, Level 20, 1 Queen Street, Auckland, 10103, | Ordinary | 100 | |
(NZ) Limited | New Zealand | |||
| Rolls-Royce Controls and Data Services | Derby 7 | Ordinary | 100 | |
(UK) Limited * 4 | ||||
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2024
145
Subsidiaries continued
| % of | |||||
| Class of | class | ||||
Company name | Address | 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 | Wilmington 8 | Common | 100 | ||
Solutions 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, | Partnership | 100 | |
| Germany | (no equity | ||||
held) | |||||
Rolls - Royce Electrical Norway AS * | Jarleveien 8A, 7041, Trondheim, Norway | Ordinary | 100 | ||
Rolls-Royce Energy Angola, Limitada 2 | Municipality of Ingombota, Angola | Casa no. 174, Largo Leite Duarte, Bairro Miramar, Luanda, | Quota | 100 | |
Rolls-Royce Energy Systems Inc. 2 | Wilmington 8 | Common | 100 | ||
Stock | |||||
| Rolls-Royce Engine Services Holdings | Wilmington 8 | Common | 100 | ||
Co. | Stock | ||||
| Rolls-Royce Engine Services Limitada | Bldg. 06 Berthaphil Compound, Jose Abad Santos Avenue, | Capital Stock | 100 | ||
Inc. 9 | Clark Special Economic Zone, Clark, Pampanga, Philippines | ||||
Rolls-Royce Erste Beteiligungs GmbH * | Eschenweg 11, | 15827 | Blankenfelde-Mahlow OT Dahlewitz, | Capital Stock | 100 |
Germany | |||||
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 * | Derby 7 | Ordinary | 100 | ||
| 4 | |||||
| Rolls-Royce General Partner (Ireland) | 29 Earlsfort Terrace, Dublin 2, Dublin, D02AY28 Ireland | Ordinary | 100 | ||
Limited * | |||||
Rolls - Royce General Partner Limited * 2 | London 3 | Ordinary | 100 | ||
| Rolls-Royce High Temperature | Corporation Service Company, 2710 Gateway Oaks Drive, Suite | Ordinary | 100 | ||
Composites Inc. | 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 | Ordinary | 100 | ||
Rolls-Royce India Private Limited 6 | Birla Tower West, 2nd Floor 25, Barakhamba Road, New Delhi, | Equity | 100 | ||
110001, | 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 | Derby 7 | Ordinary | 100 | ||
| Engineering (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 | ||
Rolls-Royce Marine North America Inc. | 6000 | Wilmington 8 | Kuala Lumpur, Malaysia | 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 | Wilmington 8 | Common | 100 | ||
Inc. | Stock | ||||
| Rolls-Royce North America Ventures | Wilmington 8 | Common | 100 | ||
Inc. | Stock | ||||
Rolls-Royce North America Inc. | Wilmington 8 | Common | 100 | ||
Stock | |||||
| Rolls-Royce North American | Wilmington 8 | Common | 100 | ||
Technologies Inc. | Stock | ||||
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2024
146
Subsidiaries continued
| % of | |||||
| Class of | class | ||||
Company name | Address | shares | held | ||
Rolls-Royce Oman LLC | Bait Al Reem, Business Office #131, Building No 81, Way No | Ordinary | 100 | ||
3409, | Block No 234, Al Thaqafa Street, Al Khuwair, PO Box 20, | ||||
| Rolls-Royce Operations (India) Private | Postal Code 103, Oman | Birla Tower West, 2nd Floor, 25 Barakhamba Road, New Delhi, | Ordinary | 100 | |
Limited 2, 6 | 110001, | India | |||
| Rolls-Royce Overseas Holdings Limited | Derby 7 | Ordinary | 100 | ||
Ordinary A | 100 | ||||
| Rolls-Royce Overseas Investments | Derby 7 | Ordinary | 100 | ||
Limited 4 | |||||
Rolls - Royce Placements Limited 2 | 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 | ||
| Rolls-Royce Solutions Africa (Pty) | Jiang Su, China | 36 Marconi Street, Montague Gardens, Cape Town, 7441, South | Capital Stock | 100 | |
Limited | Africa | ||||
Rolls-Royce Solutions America Inc. | 100 | West Tenth Street, Wilmington - Delaware | DE 19808, | Ordinary | 100 |
Rolls - Royce Solutions Asia Pte. Limited | 10 Tukang Innovation Drive, Singapore 618302 | United States | 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 Sao P ã ulo – 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 | 14/F, Chinabest International Centre, 8 Kwai On Road, Kwai | Ordinary | 100 | ||
Limited | Chung, 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. | 14-3, Nishitenma 4-chome, Kita-ku, Osaka 530-0047, Japan | Ordinary | 100 | ||
Limited | |||||
Rolls-Royce Solutions Korea Limited | Unit 301, The Square, 9 Mulgeum-ro, Mulgeum-eup, Yangsan- | Ordinary | 100 | ||
si, Gyeongsangnam - do 50657, Republic of Korea | |||||
| Rolls-Royce Solutions Liège Holding | Rue de l’Avenir 61, 4460, Grace-Hollogne, Belgium | Ordinary | 100 | ||
S.A. | |||||
Rolls - Royce Solutions Liège S.A. | Rue de l’Avenir 61, 4460, Grace - Hollogne, Belgium | Ordinary | 100 | ||
| Rolls-Royce Solutions Magdeburg | Friedrich-List-Strasse 8, 39122 Magdeburg, Germany | Capital Stock | 100 | ||
GmbH | |||||
| Rolls-Royce Solutions Malaysia Sdn. | Office no. B329, Spaces Platinum Sentral, Lot G02-G07, Level 3 | Ordinary | 100 | ||
| Bhd. | Platinum Sentral, Jalan Stesen Sentral 2, 50470 Kuala Lumpur, | ||||
| Rolls-Royce Solutions Mexico City S.A. | Malaysia | Xochicalco 620, Colonia Letran Valle, Delegacion Benito | Common | 100 | |
de C.V. | Juarez, Mexico City 03650, Mexico | Shares | |||
Rolls-Royce Solutions Middle East FZE | S3B5SR06, Jebel Ali Free Zone, South P.O. Box 61141, Dubai, | Ordinary | 100 | ||
Rolls - Royce Solutions Ruhstorf GmbH | United Arab Emirates | 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, South | Ordinary | 100 | ||
Limited | 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 * | United Kingdom | Atlantic House, Raynesway, Derby, Derbyshire DE21 7BE, | Ordinary | 100 | |
Rolls-Royce Technical Support Sarl | Site Motoristes Vendor-Village , 46 avenue Jean Monnet, | Ordinary | 100 | ||
31770, | Colomiers, France | ||||
| Rolls-Royce Total Care Services Limited | Derby 7 | Ordinary | 100 | ||
*
4
*
*
4
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2024
147
Subsidiaries continued
| % of | |||||
| Class of | class | ||||
Company name | Address | shares | held | ||
| Rolls Royce Turkey Güç Çözümleri San. | Cumhuriyet Mah. Yakacık D-100 Kuzey Yanyol Cad. No: 25 | Cash shares | 100 | ||
ve Tic.Ltd.Şti. | Kartal, 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, | Capital Stock | 100 | |
Germany | |||||
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, England, DE24 9HY, United | Limited by | 100 | ||
Kingdom | 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 * | Unit 13a, Little Oak Drive, Sherwood Park, Annesley, | Ordinary A | Nil | ||
| 1 | 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 | London 3 | Ordinary | 100 | ||
| 2 | |||||
Vinters - Armstrongs Limited 2 | London 3 | Ordinary B | 100 | ||
Yocova Private Ltd * 2 | London 3 | Ordinary | 100 | ||
Yocova PTE. Ltd. * 2 | 6 Shenton Way, #33-00 OUE, Downtown Singapore 068809, | Ordinary | 100 | ||
Singapore | |||||
*
* Owned directly by the Company
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. The Company
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. The Company
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 the Company 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 is accounted for as a joint venture as approval is required from the other shareholder for operationally running the affairs of
the entity
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2024
148
| % of | Group | ||||
| class | interest | ||||
Company name | Address | Class of shares | held | held % | |
Aero Gearbox International SAS * 12 | 18 Boulevard Louis Sequin, 92700 | Ordinary | 50 | 50 | |
Colombes, France | |||||
Airtanker Services Limited * | Airtanker Hub, RAF Brize Norton, | Ordinary | 23.5 | 23.5 | |
| Carterton, Oxfordshire OX18 3LX, United | |||||
Kingdom | |||||
Alpha Leasing (US) (No.2) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Leasing (US) (No.4) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Leasing (US) (No.5) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Leasing (US) (No.6) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Leasing (US) (No.7) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Leasing (US) (No.8) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Leasing (US) LLC | Wilmington 8 | Partnership (no | – | 50 | |
equity held) | |||||
Alpha Partners Leasing Limited | 1 Brewer’s Green, London 3 SW1H 0RH, | Ordinary A | 100 | 50 | |
United Kingdom | Ordinary B | Nil | |||
| Beijing Aero Engine Services | No.12 Jinhang Middle Road, Shunyi District, | Capital | 50 | 50 | |
| Company | (Tianzhu Comprehensive Bonded Zone | ||||
Limited * | Bonded Function Zone 2), Beijing , China | ||||
CFMS Limited | 43 Queen Square, Bristol BS1 4QP, United | Limited by | – | 33.3 | |
Kingdom | guarantee | ||||
| Clarke Chapman Portia Port Services | Maritime Centre, Port of Liverpool, | Ordinary A | 100 | 50 | |
Limited 2 | Liverpool L21 1LA, United Kingdom | Ordinary B | Nil | ||
Egypt Aero Management Services 9 | Maintenance and Technical Works | Ordinary | 50 | 50 | |
| Company Building, Room No. 204, Second | |||||
Floor, Airport Road, El Nozha, Cairo | |||||
EPI Europrop International GmbH * | Pelkovenstr. 147, 80992 München, | Capital Stock | 28 | 28 | |
Germany | |||||
Eurojet Turbo GmbH * | Lilienthalstrasse 2b, 85399 Halbergmoos, | Ordinary | 33 | 33 | |
Germany | |||||
| Force MTU Power Systems Private | Mumbai Pune Road, Akurdi, Pune, | Capital Stock | 49 | 49 | |
Limited | Maharashtra 411035, India | ||||
Genistics Holdings Limited * | Derby 7 | Ordinary A | 100 | 50 | |
Ordinary B | Nil | ||||
| Global Aerospace Centre for Icing | 1000 | Marie-Victorin Boulevard, Longueuil | Ordinary | 50 | 50 |
and Environmental Research Inc. 12 | Québec J4G 1A1, Canada | ||||
Hoeller Electrolyzer GmbH 13 | Alter Holzhafen, 23966 Wismar, Germany | Ordinary | 54.2 | 54.2 | |
| Hong Kong Aero Engine Services | 33rd Floor, One Pacific Place, 88 | Ordinary | 50 | 50 | |
Limited | Queensway, Hong Kong | ||||
| International Aerospace | Survey No. 3 Kempapura Village, Varthur | Ordinary | 50 | 50 | |
Manufacturing Private Limited 6, 12 | Hobli, Bangalore, KA 560037, India | ||||
ITP Next Generation Turbines SL * | Parque Tecnologico Edificio 300, 48170, | Ordinary A | Nil | 25 | |
Zamudio, Vizcaya, Spain | Ordinary B | 100 | |||
| Light Helicopter Turbine Engine | Suite 119, 9238 | Madison Boulevard, | Partnership (no | – | 50 |
| Company (unincorporated | Madison, Alabama 35758, United States | equity held) | |||
partnership) | |||||
| Manse Opus Management Company | Third Floor Queensberry House, 3 Old | Limited by | 33.3 | 33.3 | |
Limited 6 | United Kingdom | Burlington Street, London 3 W1S 3AE, | 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 10 Jalan P Ramlee, | Ordinary A | 100 | 49 | |
50250 | Kuala Lumpur, Malaysia | Ordinary B | Nil | ||
| MTU Turbomeca Rolls-Royce ITP | Am Söldnermoos 17, 85399 Hallbergmoos, | Capital Stock | 25 | 25 | |
| GmbH * | Germany | ||||
MTU Turbomeca Rolls-Royce GmbH * | Am Söldnermoos 17, 85399 Hallbergmoos, | Capital Stock | 33.3 | 33.3 | |
Germany | |||||
MTU Yuchai Power Company Limited | No 7 Danan Road, Yuzhou, Yulin, Guangxi, | Capital Stock | 50 | 50 | |
China, 537005, | China | ||||
| N3 Engine Overhaul Services GmbH & | Gerhard-Höltje-Strasse 1, D-99310, | Capital Stock | 50 | 50 | |
Co KG | Arnstadt, Germany | ||||
| N3 Engine Overhaul Services | Gerhard-Höltje-Strasse 1, D-99310, | Capital Stock | 50 | 50 | |
Verwaltungsgesellschaft Mbh | Arnstadt, Germany | ||||
Subsidiaries, Joint Ventures and Associates Rolls-Royce plc Annual Report 2024
149
Joint Ventures and Associates continued
| % of | Group | |||
| class | interest | |||
Company name | Address | Class of shares | held | held % |
| Rolls Laval Heat Exchangers Limited * | Derby 7 | Ordinary | 50 | 50 |
| 2 | ||||
| Rolls-Royce & Partners Finance (US) | Wilmington 8 | Partnership (no | – | 50 |
(No 2) LLC | equity held) | |||
| Rolls-Royce & Partners Finance (US) | Wilmington 8 | Partnership (no | – | 50 |
LLC | equity held) | |||
SAFYRR Propulsion Limited * 2 | Derby 7 | Ordinary A | Nil | 50 |
Ordinary B | 100 | |||
| Singapore Aero Engine Services | 11 Calshot Road, 509932, Singapore | Ordinary | 50 | 50 |
Private Limited | ||||
Taec Ucak Motor Sanayi AS 2 | Levent Mahallesi Prof. Ahmet Kemal Aru Sk. | Cash Shares | 49 | 49 |
No: 4/1, Beşiktaş, Turkey | ||||
Techjet Aerofoils Limited 12 | Tefen Industrial Zone, PO Box 16, 24959, | Ordinary A | 50 | 50 |
Israel | Ordinary B | 50 | ||
TRT Limited * | 2 Bramble Way, Clover Nook Industrial | Ordinary A | Nil | 50 |
| Estate , Somercotes, Derbyshire, England, | Ordinary B | 100 | ||
DE55 4RH, United Kingdom | 1 C | Nil | ||
Turbo-Union GmbH * | Lilienthalstrasse 2b, 85399 Halbergmoos, | Capital Stock | 40 | 40 |
Germany | ||||
| Xujiawan, Beijiao, Xian 710021, Shaanxi, | Ordinary | 49 | 49 | |
X R Aero Components Limited * 12 | China |
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
150
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF ROLLS-ROYCE PLC
Report on the audit of the financial statements
Opinion
In our opinion:
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;
standards as applied in accordance with the provisions of the Companies Act 2006;
Accounting Practice (United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure Framework”, and
applicable law); and
We have audited the financial statements, included within the Annual Report and audited financial statements (“Annual Report”), which
comprise: the consolidated and company balance sheets as at 31 December 2024; the consolidated income statement, the consolidated
and company statements 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 of Rolls-Royce Holdings plc (the company's ultimate parent
company).
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 6, 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.
Key audit matters
Long-term contract accounting and associated provisions (group and company)
Deferred tax asset recognition and recoverability (group and company)
Translation of foreign currency denominated transactions and balances (group and company)
Presentation and accuracy of underlying results and disclosure of other one-off items (including exceptional items) (group)
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
151
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: £92m (2023: £80m) based on approximately 1.0% of revenue (2023: approximately 1.0% of
revenue).
Performance materiality: £110m (2023: £80m) (group) and £65m (2023: £60m) (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.
Key audit matter How our audit addressed the key audit matter
Long-term contract accounting and associated provisions
(group and company)
Directors’ Report and note 1 to the consolidated and company
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 impac
t the consolidated income
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
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
152
Key audit matter How our audit addressed the key audit matter
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.
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.
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;
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 and
company)
Directors’ Report, note 1 to the consolidated and company
financial statements – Accounting policies – Taxation, note 5 to
the consolidated financial statements and Note 16 to the
company financial statements – Deferred 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.
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,
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.
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 of the
consolidated financial statements; and notes 1 and 16 of the
company financial statements.
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
153
Key audit matter How our audit addressed the key audit matter
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 did not identify any material uncorrected exceptions from
our audit work.
Translation of foreign currency denominated transactions and
balances (group and company)
Note 1 to the consolidated and company financial statements –
Accounting policies – Foreign currency translation
Foreign exchange rate movements influence the reported
consolidated income statement, the consolidated cash flow
statement and the consolidated and company balance sheets.
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 by transaction currency,
tested to source data and assessed the completeness of
these balances and transactions requiring adjustments;
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.
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
27 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 27 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 27 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
.
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
154
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 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.
The company comprises a number of businesses and we leveraged the testing performed over the largest of these that was obtained
for the group audit. In addition, we centrally tested certain items such as derivatives as part of our treasury operations, defined benefit
obligations, as well as corporate taxation. We audited company level adjustments including intercompany balances and the
recoverability of investments in subsidiaries.
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. In addition to enquiries with management, we understood the
governance process in place to assess climate risk, reviewed the ultimate parent company’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 of Rolls-Royce
Holdings plc (the ultimate parent company) 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.
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.
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
155
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 Rolls-Royce Holdings plc 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 Rolls-Royce Holdings plc Annual 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.
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). £92m (2023: £80m).
How we
determined it
Approximately 1.0% of underlying revenue (2023:
approximately 0.6% of underlying revenue)
Approximately 1.0% of revenue (2023: approximately
1.0% of revenue)
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.
Consistent with the group financial statements, we have
used revenue to determine materiality as opposed to a
profit based benchmark. We have used statutory
revenue rather than underlying revenue because
underlying revenue is not disclosed for the company.
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: £80m) for the group
financial statements and £65m (2023: £60m) 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 of Rolls-Royce Holdings plc (the company's ultimate parent company) that we would report to
them misstatements identified during our audit above £7m (group audit) (2023: £3m) and £4.4m (company audit) (2023: £3m) as well as
misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
156
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.
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 .
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.
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
157
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;
● 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.
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.
Independent Auditors’ Report Rolls-Royce plc Annual Report 2024
158
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 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 of Rolls-Royce Holdings plc (the company's ultimate parent company), 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.
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 February 2025
Other Financial Information Rolls-Royce plc Annual Report 2024
159
OTHER FINANCIAL INFORMATION
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:
£m
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 51.
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:
— Rolls-Royce Holdings plc Audit Committee Report (page 82
of the Rolls-Royce Holdings plc Financial Statements) –
updates were given to the Audit Committee during the
year;
— note 1 to the Consolidated Financial Statements (page 65)
‒ details of key areas of uncertainty and accounting
policies for tax;
— note 5 to the Consolidated Financial Statements (pages 79
to 82); 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 Group’s approach to managing its 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 19. 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
202
4
202
3
Total equity
(
521
)
(3,269)
Cash flow hedges
(1
3
)
(12)
Group capital
(
534
)
(3,281)
Net
cash/(
debt
)
474
(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.
Other Financial Information Rolls-Royce plc Annual Report 2024
160
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 the 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 £2.5b.
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 16.
Credit rating
£m
Rating
Outlook
Moody’s Investors Service
Ba
a
3
Positive
Standard & Poor’s
BB
B
Positive
Fitch
BB
B
-
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 95 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.
Alternative Performance Measures Rolls-Royce plc Annual Report 2024
161
RECONCILIATION OF ALTERNATIVE PERFORMANCE MEASURES (APMs) TO THEIR STATUTORY
EQUIVALENT
Alternative Performance Measures (APMs)
Business performance is reviewed and managed on an underlying basis. These alternative performance measures reflect the economic
substance of trading in the year. 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 from continuing operations
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 from continuing operations
Statutory revenue
18,909
16,486
Derivative and FX adjustments
(1,061)
(1,077)
Underlying revenue
17,848
15,409
2024
£m
2023
£m
Gross profit
Statutory
gross
profit
4,221
3,620
Derivative and FX adjustments
(18
8
)
(461)
Programme exceptional
credits
–
(21)
Exceptional transformation and restructuring charges
147
55
Acquisition accounting and M&A
43
46
Impairments
–
(8)
Civil
Aerospace programme asset impairment reversal
(132)
–
Underlying
gross
profit
4,091
3,231
2024
£m
2023
£m
Commercial and administrative costs from continuing operations
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
c
osts
(1,197)
(1,064)
2024
£m
2023
£m
Research and
development costs from continuing operations
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)
2024
£m
2023
£m
Operating profit from continuing operations
Statutory operating profit
2,906
1,944
Derivative and FX adjustments
(191)
(475)
Programme exceptional
credits
–
(21)
Exceptional transformation and r
estructuring charges
234
102
Acquisition accounting and M&A
45
5
0
Civil Aerospace pro
g
ramme asset impairment reversal
(545)
–
Impairments
(2)
(8)
Other underlying adjustments
17
(2)
Underlying operating profit
2,464
1,590
Underlying operating
margin
13.8%
10.3%
Alternative Performance Measures Rolls-Royce plc Annual Report 2024
162
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 r
evenue
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 p
rofit before taxation
2,293
1,262
1,031
(36)
1,067
85
Taxation
(282)
(120)
(162)
10
(172)
143
Underlying p
rofit for the year from continuing operations
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
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
Alternative Performance Measures Rolls-Royce plc Annual Report 2024
163
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 below) 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
(6
2
)
(56)
Trading cash flow
2,83
5
1,484
Underlying operating profit charge
exceeded by
contributions to defined benefit schemes
(31)
(
26
)
Tax
1
(381)
(172)
Free cash flow
2,42
3
1,286
1 See page 54 for tax paid on statutory cash flow
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
3,7
80
2,486
Capital expenditure
(87
6
)
(699)
Investment (including investment from NCI and
movement in joint ventures, associates and other investments)
16
69
Capital element of lease payments
(2
99
)
(291)
Interest paid
(298)
(333)
Exceptional transformation and restructuring costs
104
69
M&A costs
1
2
Other
(5)
(17)
Free cash flow
2,423
1,286
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
Alternative Performance Measures Rolls-Royce plc Annual Report 2024
164
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.
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
Glossary Rolls-Royce plc Annual Report 2024
165
GLOSSARY
AI
aicial intelligence
HVO
hydroreated vegetable oil
APM
altenaive pefomance measure
IASB
Intenaional Accouning Standards Board
Aicles Aicles of Associaion of Rolls-Royce plc IFRS Intenaional Financial Repoing
Standards
AUKUS
Ausralia, United Kingdom, United States
KPIs
key pefomance indicators
BESS
batey energy storage system
ktCO
2
e
kilotonnes of cabon dioxide equivalent
C&A
commercial and adminisraive
LIBOR
London inter
-
bank ofered rate
CDP
Cabon
Disclosure Project
LTIP
long
-
tem incenive plan
Our Code
Global Code of Conduct
LTSA
long
-
tem sevice agreement
The Code
2018 UK Coporate Govenance Code
M&A
mergers and acquisiions
CMD
capital makets day
MRO
maintenance repair and
ovehaul
Company
Rolls
-
Royce plc
NCI
non
-
conrolling interest
DPAs
defered prosecuion agreements
OCI
oher comprehensive income
DTR The Financial Conduct Auhoity’s
Disclosure, Guidance and Transparency
Rules
OE oiginal equipment
EFH engine ying hours OECD Organisaion for Economic Cooperaion
and Development
ESG
environment, social, govenance
PPE
propety, plant and equipment
EU
European Union
R&D
research and development
EUR
Euro
RRH
Rolls
-
Royce Holdings plc
FLRAA Fuure Long Range Assault Aircraft RRH AGM Rolls-Royce Holdings plc annual general
meeing
FRC Financial Repoing Council RRH Annual
Repot 2024
Rolls-Royce Holdings plc Annual Repot
and Accounts for he year ending 31
December 2024
FVOCI fair value recognised hrough oher
comprehensive income
RRSAs isk and revenue shaing arangements
FX
foreign exchange
SAF
sustainable aviaion fuel
GBP Great Biish pound or pound steling SAESL Singapore Aero Engine Sevices Pivate
Limited
GCAP Global Combat Air Programme Scope 1 + 2
emissions
Group Scope 1 + 2 greenhouse gas
emissions
GDA
geneic design assessment
SMRs
small modular reactors
GDP gross domesic product STEM science, technology, engineeing and
mahemaics
GESPP
Global Employee Share Purchase Plan
TCC
total cash costs
GHG greenhouse gas TCC/GM total undelying cash costs as a propoion
of undelying gross margin
Group Rolls-Royce plc and its subsidiaies TCFD Task Force on Climate-related Financial
Disclosures
GW
Gigawat
TSR
total shareholder reun
HPT
high pressure ubine
UKEF
UK Expot Finance
HSE
healh, safety and environment
USD/US$
United States dollar