rollsroyce holdings plc annual report 2014
© rollsroyce plc 2015
rollsroyce holdings plc 
registered office  
62 buckingham gate 
london 
sw1e 6at
t 44 020 7222 9020 
wwwrollsroycecom
company number 7524813
rollsroyce holdings plc
annual report 2014
better power for a changing world cover image transatlantic air exchanges  airline routes between north america and europe félix pharanddeschênesglobaïa
this page front fan from a trent 1000 aero engine
rollsroyce designs develops manufactures and services 
integrated power systems for use in the air on land and at sea 
we are one of the world’s leading producers of aero engines for large civil aircraft and corporate 
jets we are the second largest provider of defence aero engines and services in the world 
for land and sea markets reciprocating engines and systems from rollsroyce are in marine 
distributed energy oil  gas rail and offhighway vehicle applications in nuclear  we have a strong 
instrumentation product and service capability in both civil power and submarine propulsion
designed and produced by  
the paper used in the report contains 75 recycled 
content of which 75 is deinked postconsumer 
all of the pulp is bleached using an elemental chlorine  
free process ecf
printed in the uk by pureprint using their   
and  environmental printing technology using 
vegetable inks throughout pureprint is a carbonneutral® 
company both the paper manufacturing mill and the printer 
are registered to the environmental management system  
iso 14001 and are forest stewardship council® fsc  
chainofcustody certified
designed and produced by  
the paper used in the report contains 75 recycled 
content of which 75 is deinked postconsumer 
all of the pulp is bleached using an elemental chlorine  
free process ecf
printed in the uk by pureprint using their   
and  environmental printing technology using 
vegetable inks throughout pureprint is a carbonneutral® 
company both the paper manufacturing mill and the printer 
are registered to the environmental management system  
iso 14001 and are forest stewardship council® fsc  
chainofcustody certified how we manage  
our business
board of directors  54
chairman’s introduction  56
corporate governance  59
committee reports
 nominations and governance  64
 safety and ethics  66
 audit  69
 remuneration 74 
directors’ remuneration  76
directors’ remuneration policy  86
 responsibility statements  93
other statutory information 162
our business model and 
how we performed
group at a glance  2 
better power  4
chairman’s review  10
chief executive’s review  14
innovation and technology  20
market outlook 22
strategy  23
business model 24
chief financial officer’s review 26
financial review  28
business reviews
 aerospace 32
 land  sea  36
our people  42
sustainability 44
key performance indicators 48
principal risks 50
the financial statements  
of the group
financial statements contents  94
 group financial statements  95
company financial statements  149
auditor’s report and 
shareholder information
subsidiaries jointly controlled  
entities and associates  152
independent auditor’s report  154
additional financial information  160 
shareholder information 166 
glossary  168
strategic report directors’ report financial statements other information
what’s inside…
2014 2013 change
order book £m 73674 71612 3
underlying revenue £m 14588 15505 6
underlying profit before tax £m 1617 1759 8
underlying earnings per share 653p 656p 03p
full year payment to shareholders excluding buyback 231p 220p 5
reported revenue £m
†
13736 14642 6
reported profit before tax £m
†
67 1700 96
reported earnings per share
†
37p 733p 696p
net cash £m 666 1939 66
free cash flow £m 254 781 67
 underlying explanation is in note 2 on page 110 
† 2013 represented to reflect energy as a discontinued operation
all figures in the narrative of the strategic report are underlying unless otherwise stated
financial  
highlights
how did we  
perform in 2014
forwardlooking statements
this annual report contains forwardlooking statements any statements that express forecasts expectations and projections are not guarantees of future 
performance and guidance may be updated from time to time 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 this report is 
intended to provide information to shareholders is not designed to be relied upon by any other party or for any other purpose and the company and its 
directors accept no liability to any other person other than that required under english law
1
strategic report 2 annual report 2014 rollsroyce holdings plc
strategic report
group at a glance
group
£1617m
underlying group  
profit before tax
employees year average
invested in rd
engineers year end
54100 15500
£12bn
order book
£737bn 50
countries
underlying group  
revenue
£14588m
a highvalue 
global 
business
the group is organised into two divisions 
aerospace and land  sea
our vision is to create better power for 
a changing world 
we do this by developing worldleading 
technology  producing highly efficient 
products and providing throughlife 
services in each of our chosen markets 
 
underlying group 
revenue
 aerospace 61
 land  sea 39 
patents applied for
600 strategic report
aerospace
land  sea
the aerospace division is a leading 
producer of aero engines for large 
civil aircraft and corporate jets  
we are the second largest provider 
of defence aero engines and 
services in the world
we power more than 50 types of 
aircraft across civil and defence 
markets and have over 29000 
engines in service
the land  sea division 
comprises power systems  
marine and nuclear 
our power systems business 
includes the worldrenowned  
mtu range of reciprocating 
engines marine has 
equipment installed on over  
25000 vessels 
we have a growing civil nuclear 
business and have 55 years of 
experience in nuclear submarine 
propulsion 
civil aerospace
power systems
defence aerospace
£2069m
£366m
underlying revenue
underlying revenue
underlying revenue underlying revenue we sold the energy  
gas turbines and 
compressor business  
to siemens on  
1 december 2014
underlying profit
underlying profit
underlying profit underlying profit
underlying revenue 
underlying profit
£6837m
£2720m
£942m
£253m
underlying revenue
underlying profit
nuclear energy
£684m £724m
£48m £3m
marine
£1709m
£138m
underlying 
revenue mix
oe revenue 48
services revenue 52 
underlying
revenue mix
oe revenue 70
services revenue 30 
underlying
revenue mix
oe revenue 63
services revenue 37 
underlying
revenue mix
oe revenue 39
services revenue 61 
underlying
revenue mix
oe revenue 37
services revenue 63 
pages 32 to 35  
for more information
pages 36 to 41  
for more information 
3 better power for a
changing 
world
annual report 2014 rollsroyce holdings plc 4
strategic report our world is changing the climate 
is altering and populations are 
increasing we need more power  
but not at any cost to society  
the world needs better power
rollsroyce is committed to research 
and technology in order to develop 
innovative and advanced power 
systems that can help 
our vision is to deliver better power 
for a changing world the following 
pages illustrate how we are doing 
this in the air on land and at sea
strategic report
5 world’s most efficient large aero engine 
launch customer qatar airways took delivery of the first 
trent xwbpowered airbus a350 xwb at the end of 2014 
the trent xwb is the world’s most efficient large aero 
engine and is 10 more fuel efficient than the legacy 
engines it is designed to replace 
this first delivery signifies the start of a major engine 
production programme for the group customers have 
ordered over 1500 trent xwb engines representing  
49 of the civil aerospace order book 
in the air
better power
strategic report
6 annual report 2014 rollsroyce holdings plc leading in latest transporter power
rollsroyce is the market leader in powering military transport 
aircraft with 8000 engines in service the new airbus a400m 
transporter continued to enter service successfully during 2014 
the a400m is powered by the tp400 turboprop engine in which 
rollsroyce is a major partner we also secured a landmark 
agreement during the year with lockheed martin for up to  
600 engines to power its c130j transporter
our fleet of t56 engines has accumulated over 200 million 
operating hours having first entered service in 1954 we 
recently introduced an upgrade for the t56 that a us air force 
study predicts could deliver us240 million in fuel savings for 
its fleet through to 2040 
further and faster on less fuel
rollsroyce continues to be a market leader in powering large 
corporate jets the latest version of cessna’s flagship aircraft the 
citation x entered service in june 2014 further cementing our 
position in this important market sector the improved version  
of our ae 3007 engines on the citation x delivers an increase in  
thrust at takeoff coupled with a reduction in fuel burn – helping 
people to fly further and faster but using less fuel to do it 
in addition we strengthened our longstanding relationship with 
gulfstream when we were selected in 2014 to power its new  
g650er corporate jet
strategic report
7 local energy – naturally
efficient lowemission power systems are  
in demand across the world for effective 
solutions to local energy needs through 
mtu onsite energy rollsroyce is providing 
reliable power for applications such as 
healthcare data centres airports farms  
and independent power stations
in chile for example two mtu onsite energy 
units powered by series 4000 engines are 
now generating 6400mwh of electricity  
a year from biogas produced by a local  
pig farm these units are the first in the 
country to generate electricity from a  
biogas plant for our customer they provide 
ecofriendly and profitable power to 2500 
families in the area
powerpacked on the railways 
power systems is a major player in engines 
for the rail industry to date over 20000 
mtu engines have been sold for use in drive 
systems and electrical generation in this 
global market 2014 marked the 90th year of 
mtu engines being supplied for rail traction
as well as the anniversary this year also  
saw an agreement reached with polish rail 
vehicle manufacturer pesa for the supply  
of up to 940 mtu powerpacks® to be used in 
railcars operated by deutsche bahn these 
powerpacks are among the most advanced 
in the industry meeting all the latest 
european union requirements on emissions
annual report 2014 8 rollsroyce holdings plc
strategic report
on land
and a t sea
better power 40 years of offshore flagships
the utdesign series from rollsroyce is 
recognised worldwide as the benchmark  
for the offshore industry today’s vessels 
employ our wavepiercing hull which 
improves efficiency and reduces fuel 
consumption all major propulsion systems 
are fully integrated with the hull design  
to give optimum performance 
rollsroyce utdesign vessels have been 
helping pioneer oil  gas exploration  
and providing offshore support for 40 years 
so far more than 800 have been built or  
are currently under construction
strategic report
9 chairman’s review
after a decade of strong 
performance and 
growth 2014 was a year 
of mixed fortunes for 
our company 
ian davis
chairman
 we are totally 
focused on returning the 
company to its longterm 
trajectory of profitable 
growth and of superior 
shareholder returns”
rollsroyce holdings plc
strategic report
10 annual report 2014  the 
fundamentals 
of the business 
remain strong”
there have been some real pluses and 
achievements alongside a number of 
challenges that held back the company’s 
financial performance
during the course of the year our order  
book reached its highest ever level we also 
celebrated the delivery of the first airbus  
a350 xwb to our launch customer qatar 
airways powered by rollsroyce trent xwb 
engines our record of customer service 
continues to improve in civil aerospace  
for example we have maintained a record  
of 100 ontime delivery to airbus for the 
past two years in the same period our 
marine business improved original 
equipment ontime delivery by 11 while 
spares delivery improved across the group 
we still have more to do here and we are 
totally committed to enhancing customer 
satisfaction with our products and services 
however progress is encouraging and  
bodes well for the future happy customers 
are a precondition for a successful  
longterm business 
set against these achievements 2014 was 
the first year in a decade in which revenue 
and underlying profits on a likeforlike 
basis did not grow the defence business 
was hit hard by constraints in government 
expenditure in our land  sea division  
we faced tough market conditions 
characterised by pricing pressure and 
deferred or cancelled orders by customers 
particularly in the oil  gas construction 
and mining industries
in addition to some difficult trading 
conditions we did not make as much 
progress as planned on improving our cost 
and cash performance we fully recognise 
this is a priority if we are to provide 
attractive returns to shareholders as well  
as to fund the investment requirements 
that will underpin longterm growth  
ours is a business that requires significant 
upfront cash investment to generate 
longterm cash flow
shareholder distributions
despite the shortterm challenges the 
fundamentals of the business remain 
strong rollsroyce is a growth company 
well positioned in longterm growth 
markets that offer the prospect of  
attractive returns 
we know that shareholders do not invest  
in growth alone they invest for growth 
that’s profitable our payment to 
shareholders of 231p reflects the confidence 
the board has in the company’s profitability 
and cash generation prospects at the same 
time we are committed to retaining a strong 
balance sheet civil aerospace in particular 
although an attractive longterm business 
can still be prone to external market shocks 
our customers who depend on our service 
support for periods of up to 25 years  
both expect and demand a financially 
resilient supplier 
strategy
rollsroyce is intrinsically a longterm 
business and has to be directed and 
managed as such in civil aerospace  
for example products take many years  
to develop test and bring to market and  
are quite rightly subject to strict regulatory 
process revenue from the sale of original 
equipment and subsequent aftermarket 
services generate cash flows for decades
the board reviewed the group’s product 
portfolio and corporate structure in  
light of these financial and investment 
characteristics this review led to the 
decision to divest our energy business  
and we completed its sale to siemens  
in december at the same time we 
strengthened our position in the core 
division of land  sea by completing the 
acquisition of the shares held by daimler  
in power systems we are focused on the 
twin pillars of aerospace and land  sea 
because of their technology and service 
model synergies and their combined ability 
to create shared competitive advantage
our strong belief is that shareholders  
as well as customers and employees will  
be best served if the company continues to 
focus on expanding its position in the highly 
attractive global markets for power and 
propulsion we have longestablished and 
payment to shareholders
231p 2013 220p
underlying eps
653p 2013 656p
order book
£74bn 2013 £72bn
return on sales
115 2013 118
financial highlights
more financial information  
on pages 26 to 31
11
strategic report competitive technology platforms as well  
as customer relationships in gas turbines 
reciprocating engines nuclear services and 
controls we see substantial longterm value 
creation and growth potential from these 
products not least from aftermarket 
services where rollsroyce has been a 
pioneer there will be cyclicality and 
volatility – external and internal risks are  
not insignificant – however our longterm 
aspiration is to build on our position  
as a leading global provider of complex 
integrated power systems for use in the  
air on land and at sea
innovation
innovation has been and is critical to  
the longterm success of rollsroyce  
we cannot depend on size and scale alone 
for competitive advantage we invest more 
than £1 billion a year in research and 
development rd to ensure that we 
conceive design and deliver worldclass 
technology that meets our customers’ 
current and future requirements
innovation is not just about rd numbers 
and not just about product technology  
an increasing focus for example is on data 
analytics and on control systems to reflect 
our customers’ increasing requirements for 
integrated solutions rollsroyce has long 
been an innovator in services and we will  
be looking to build on this i am especially 
proud of our collaborative approach to 
innovation particularly our work with 
leading universities across the world on 
designated topics and technologies we are 
quite clear that we must improve our capital 
efficiency our cost competitiveness and our 
cash generation however this will not be at 
the expense of our strategic commitment to 
innovation and development these will be 
the drivers of longterm profitable growth 
and value creation
talent and capabilities
i would like to touch on some of the key 
enablers that will be required to deliver  
our strategy and our operational plans in 
particular we need to attract develop and 
retain outstanding talent everywhere we 
operate commercial and functional talent 
as much as engineering talent in the past 
year we recruited 354 graduates from 112 
universities in 11 countries and we recruited 
357 apprentices across the world i am 
pleased that 26 of our graduate recruits 
and 10 of our uk apprentices are female 
– not good enough but progress our 
community programmes remain directed 
towards encouraging young people 
particularly females to choose science 
technology engineering and maths stem 
subjects we are in the process of reviewing 
our training and leadership development 
programmes particularly for middle 
managers we are also exploring ways of 
accelerating and broadening career paths 
for our highest potential talent across the 
world and for further increasing diversity  
as an important element of changing and 
strengthening our culture
corporate governance
the board recognises that strong 
governance is a hallmark of excellent 
companies we remain committed to  
being a leader in ethical behaviour and in 
environmental and social responsibility we 
are updating and upgrading our governance 
structures and controls with a particular 
focus on risk and compliance procedures 
the concerns about bribery and corruption 
involving intermediaries in overseas 
markets and the subsequent sfo enquiry 
together with wider speculation have been 
a body blow to the company and we have 
responded accordingly we have expanded 
significantly our compliance team invested 
heavily in training and awareness building 
across the group and strengthened our 
internal controls our staff have received a 
new global code of conduct together with 
mandatory training we have established or 
expanded our own offices in many 
international markets and reduced 
dramatically the number of external 
intermediaries further details are contained 
in the safety and ethics committee report 
on page 66 we are grateful to lord gold 
who continues to advise us on compliance 
and ethics best practice
board appointments and changes
ruth cairnie formerly an executive vice 
president with royal dutch shell joined  
the board in september in addition  
pamela coles previously at centrica has 
joined rollsroyce as company secretary  
we are lucky to have both of them
 we are 
committed to being a 
leader in environmental 
and social responsibility 
and to being regarded as 
a good corporate citizen”
people and talent
we are exploring ways of accelerating  
and broadening career paths for our 
highest potential talent across the world 
and for further increasing diversity as an 
important element of changing and 
strengthening our culture
more information  
on pages 42 to 43
rollsroyce holdings plc annual report 2014 12
strategic report
chairman’s review
continued i was also very pleased to welcome david 
smith to the board david was appointed 
chief financial officer cfo in november 
replacing mark morris who left the 
company david joined rollsroyce at  
the beginning of 2014 as the cfo of the 
aerospace division prior to that he had 
extensive international experience in 
engineering and technology companies  
a particular focus for david will be to 
strengthen further our financial controls 
and management information systems  
as well as improving our communications 
with the investment community 
i would like to thank mark morris for his 
years of service and contributions to the 
company and to the board i would also  
like to thank iain conn who stood down 
from the board after nine years of dedicated 
and exemplary service he was succeeded as 
senior independent director by lewis booth
after a successful career spanning 17 years 
with rollsroyce james guyette will step 
down from the board at the conclusion of 
the 2015 annual general meeting agm 
and retire from his role as president and 
chief executive officer of rollsroyce north 
america on 31 may 2015 james has made a 
tremendous contribution to the company 
over many years he has helped guide the 
business through a period of significant 
expansion especially in the north american 
market his energy good humour and 
commitment to our customers will be 
missed by us all
john neill has also indicated that he will  
step down from the board after just over  
six years as a nonexecutive director and 
will not therefore put himself forward  
for reelection at the 2015 agm i would  
like to thank john for his tremendous 
contribution to the board and his exemplary 
commitment to rollsroyce over the last  
six years he will be missed and we wish  
him well for the future
i am pleased to announce that irene dorner 
will be joining the board as a nonexecutive 
director with effect from 27 july 2015  
she will also become a member of the 
nominations and governance committee 
and the safety and ethics committee from 
the date of her appointment she brings a 
wealth of experience from international 
banking along with a passion for driving 
culture change in large organisations
irene was ceo and president of hsbc  
usa until december 2014 where she was 
responsible for all of hsbc’s operations  
in the us and played a key role in 
strengthening their risk processes during 
her 29year career at hsbc she held a 
number of international roles she was  
the first woman to lead hsbc in malaysia 
and launched its islamic banking unit  
she is a passionate advocate of diversity  
and inclusion 
there have been some adjustments to the 
committee structure of the board explained 
in more detail in my introduction to the 
directors’ report on page 56 safety and 
ethics have been combined into one 
committee under the chairmanship  
of sir frank chapman formerly ceo of  
bg group i have also established a science 
and technology committee under the 
chairmanship of warren east formerly  
ceo of arm holdings science and 
technology are critical to the company’s 
success and warrant the attention of a 
focused committee in addition to general 
board oversight
we have benefited again from the insight 
and experience of our international advisory 
board iab the composition of which is 
described on page 57 the role of the iab  
is to provide contextual understanding  
of international economic and political 
developments and to help management 
and the board better understand longterm 
geographical opportunities and risks 
members of the iab are also available to our 
senior management on specific issues and 
areas of expertise we are fortunate to have 
such a wealth of experience and knowledge 
at our disposal i am very grateful to them 
and in particular to lord powell for his 
exemplary chairmanship of the iab
i would like to thank my fellow board 
members for their diligence and 
outstanding commitment to rollsroyce  
i would also like to thank john rishton his 
management team and all our employees 
for their hard work and exceptional 
dedication in a demanding year
i hope this review demonstrates our 
understanding of the concerns about 
rollsroyce’s financial performance in 2014 
and the 2015 outlook we are totally focused 
on returning the company to its longterm 
trajectory of profitable growth and of 
superior shareholder returns we will 
continue to focus on the 4cs of customer 
concentration cost and cash to improve 
performance and we will strengthen our 
financial controls and communications we 
will sustain our commitment to innovation 
and development
the fundamentals of the business remain 
strong they are underpinned by our record 
order book and our expanding installed 
equipment base that will generate value  
for years ahead this is a sound business 
with continued growth potential
ian davis
chairman
12 february 2015
13
strategic report 14 annual report 2014 rollsroyce holdings plc
strategic report
chief executive’s review
rollsroyce is in business 
to deliver better power 
for a changing world  
the integrated power 
systems that we develop 
build and maintain 
address the increasing 
global demand for 
transport and energy
john rishton 
chief executive
 we continually 
seek to reduce cost to remain 
competitive and to generate 
the funds we need to invest 
in future growth” 15
strategic report
as society becomes more integrated 
population expands and the world becomes 
more affluent the requirement for the  
type of advanced engineering solutions  
we provide will grow these are longterm 
trends that require longterm investment 
and present us with the opportunity for 
longterm profitable growth 
the path to growth will not always be 
smooth for rollsroyce 2014 has proved  
a challenging year for reasons that i will 
explain in some detail during 2014 group 
underlying revenue was 6 lower than in 
2013 and underlying profit before tax 
declined by 8 however the group order 
book grew to a new record of £737 billion 
demonstrating the confidence our 
customers continue to place in our 
technology and the growth that lies ahead  
it is encouraging that the defence aerospace 
order book increased for the first time since 
2010 with continued growth in the order 
books of civil aerospace and power systems
in this review i will explain why we believe 
our business model is robust i will describe 
the transformation we are driving through 
the group and the reasons for our 
confidence in the future i will also outline 
the challenges we face and the decisive 
action we are taking to accelerate a return 
to our longterm trend of profitable growth
so let me start with our business model  
we invest in technology in order to meet  
our customers’ current and future needs 
through constant innovation we create the 
opportunity to grow sales and expand our 
market share we earn revenue both from 
the sale of original equipment and from 
servicing the power systems we produce 
we continually seek to reduce cost to remain 
competitive and to generate the funds we 
need to invest in future growth
we have evolved and simplified our strategy 
to focus on the core areas of customer 
innovation and profitable growth 
customer we put customers at the heart of 
the organisation we understand their needs 
and then focus relentlessly on delivery
innovation is at the core of rollsroyce  
and drives a culture of continuous 
improvement delivering relevant 
innovation is critical to meeting our 
customers’ current and future needs
profitable growth  by focusing on our 
customers and presenting them with a 
competitive portfolio of innovative products 
and services we create the opportunity  
for longterm profitable growth
this sharper focus enables us to drive our 
business model harder and will over time 
deliver improving financial returns
from its earliest days rollsroyce has 
addressed a range of markets where 
demand exists for advanced engineering 
solutions our 1906 articles of association 
describe the business as producing 
technology for use in the air on land and at 
sea more than a century later this approach 
remains relevant and we run our business 
through the two divisions of aerospace and 
land  sea that you will see described in the 
pages of this annual report 
there is an industrial commercial and 
strategic logic that ties these two divisions 
together and generates value for the group 
industrially our knowledge of advanced 
engineering applies across both our 
divisions worldclass technology is required 
by all of our customers and as the power 
systems we produce become more 
sophisticated a deep understanding  
of materials science electronics data 
management and aftermarket services  
are increasingly important in every part  
of the group
better power
our land  sea division is well positioned 
to meet the requirements for cleaner 
power that will be driven by future growth 
in world trade
£74bn our order book 
increased in 2014 to a record level
commercially we and our competitors 
recognise the requirement of a broad 
portfolio and exposure to differing business 
and investment cycles it is not a coincidence 
that there is no pure aerospace power 
system company in the world
the scale represented by our two divisions  
is important in maintaining a strong 
balance sheet and protecting our 
investment grade rating scale has also 
enabled us to maintain a global rd 
network comprising 31 university 
technology centres and seven advanced 
manufacturing research centres these 
facilities envisage develop and test 
emerging technologies that have 
applications across our portfolio our 
breadth increases market access and 
generates opportunity for example our 
nuclear business is relatively small but 
extends our influence and gives us access  
to the highest levels of government 
internationally  16 rollsroyce holdings plc annual report 2014
strategic report
strategically our two divisions address 
markets where longterm growth is  
assured and where increasingly 
sophisticated engineering solutions will  
be required we believe both aerospace  
and land  sea markets offer attractive 
returns and play to our strengths 
the future growth of air travel is widely 
understood and reflected in our £63 billion 
civil aerospace order book to give this some 
perspective in the past decade we have 
delivered 1600 trent engines in the decade 
ahead we expect to deliver 4000 all of the 
engines in this expanding fleet will produce 
service revenues that will extend for 
decades to come our land  sea division  
is well positioned to meet the requirements 
for cleaner power that will be driven by 
future growth in world trade 90 of  
which is carried by sea urbanisation 
population growth and tighter 
environmental regulations
across the group we invest in technology 
that is continually setting new standards  
in power efficiency and environmental 
performance the complexity of what we  
do creates barriers to entry and generates 
new market opportunities put simply there 
will be significant longterm growth in 
demand for the complex integrated power 
systems we deliver and there are not many 
companies with the ability to do what we 
can do
despite these fundamental strengths  
in 2014 our shortterm performance has 
been negatively affected by a number of 
factors in aerospace our defence revenues 
fell by 20 reflecting reduced government 
defence spending in our main markets of 
north america and europe in land  sea 
slowing growth in a number of our major 
markets including continental europe 
south america and china has caused some 
customers to delay or cancel orders at the 
same time sharp declines in the price of oil 
and other commodities have led customers  
to reduce or defer expenditure especially  
in the oil  gas mining and construction 
industries
in response to these adverse conditions  
we have accelerated progress on the 4cs  
of customer concentration cost and cash 
– with a particular emphasis on cost this 
decisive action is driving a transformation 
of the business that will in time make us  
a stronger group and hasten our return  
to profitable growth 
on customer we continue to make good 
progress improving quality delivery 
reliability and responsiveness the 
characteristics our customers tell us they 
value most the results can be seen across  
a wide range of programmes at group level 
there has been a further improvement in 
delivery times – particularly for spare parts 
in aerospace the trent 1000 that powers  
the boeing 787 dreamliner has achieved  
an industryleading 999 engine dispatch 
reliability after completing over 500000 
flying hours in service since launch we  
have doubled the time on wing for both  
our trent 700 and trent 800 fleets in our 
civil small and medium engines business 
we achieved a 57 percentage points 
improvement in restoring operational 
availability for business jets in the past year
recognising the progress we have made 
airbus has presented us with its supply 
chain and quality improvement award  
the us government’s defense logistics 
agency recognised rollsroyce as a ‘first  
tier supplier’ from among 153 companies 
and we were awarded joint first place by 
aviation international news for the quality 
of our business aircraft support
in land  sea our delivery on time to 
marine customers has improved by  
33 percentage points since 2012 marine 
also signed its first commercial longterm 
service agreement as the power systems we 
deliver in land  sea become more complex 
we see further opportunities to expand our 
aftermarket activities building on the data 
and service capabilities we have developed 
in aerospace in power systems we opened 
an additional logistics centre in singapore 
enabling a 5 improvement in the 
availability of spare parts and setting  
a new standard for customer service 
improving performance in this way 
strengthens the relationship we have with 
chief executive’s review
continued
innovation
we invest in technology in order to meet 
our customers’ current and future needs 
through constant innovation we create  
the opportunity to grow sales and expand 
our market share 
more information  
on pages 20 to 21
 we continue  
to make good progress 
improving quality 
delivery reliability  
and responsiveness” 17
strategic report
our five priorities 
for the group
during 2014 we outlined the priorities 
for the business going forward
fix the basics the 4cs
this is about improving the bedrock of the 
organisation focusing on our customers  
and their needs concentrating on what we 
are good at attacking cost across the group 
and managing our cash position effectively
culture
we want a businessorientated innovative 
and costconscious culture one that 
understands our customers and delivers on 
their behalf we must have a culture where 
ethical behaviour is fully embedded so that 
we don’t just win but win right
civil widebody
we are building on success in the last decade 
we delivered 1600 trents and in the next we 
will deliver 4000 we power over 50 of new 
widebody aircraft our next generation 
engines advance and ultrafan™ will help 
maintain our leading market position
civil narrowbody
narrowbodies represent 70 of the civil 
aircraft market by volume and 50 by value 
we have the requisite skills and technology  
to return to this market and are determined 
to do so when the opportunity arises  
this is important in the longer term  
not just because of the scale this market 
segment offers but also because of the 
chance it presents to develop greater 
customer intimacy
mediumspeed reciprocating engines
mediumspeed reciprocating engines power 
the vast majority of the marine vessels that 
we design and equip we have worldclass 
technology but it is characteristic of this 
industry that the engine supplier is 
particularly well placed to pull through  
other technologies so our lack of scale  
in mediumspeed engines confers a 
disadvantage we need to address
our customers and generates opportunities 
for us to secure additional business 
concentration means deciding where  
we want to invest and where not to
in august we were pleased to acquire 
daimler’s 50 shareholding in rollsroyce 
power systems for £194 billion power 
systems adds scale and capability to our 
reciprocating engines portfolio it has 
outstanding technology operates in 
longterm growth markets and has  
proved a valuable addition to our  
land  sea division
we also divested a significant business in 
december completing the sale of our energy 
gas turbines and compressor business to 
siemens this is a business that has excellent 
technology and a talented workforce but it 
lacks the scale required to prosper as part of 
rollsroyce siemens has a far bigger power 
generation business and is a more suitable 
owner the sale generated proceeds of 
around £1 billion we are returning this to 
shareholders by way of a share buyback that 
started in december 2014
turning to cost we have taken action to 
improve cost performance in every part of 
the business and in every cost category we 
have made good progress in some areas and 
as a result group gross margins improved 
by 17 percentage points in 2014 in defence 
we have improved margins despite declining 
revenue in land  sea we closed five plants 
and are rationalising other parts of the 
business for example we are consolidating 
production of steering gear in norway and 
waterjets into finland we are driving down 
cost by improving quality simplifying 
logistics reducing waste and adopting 
processes that allow us to make things 
better and faster 
in november we announced a restructuring 
programme in our aerospace division and 
central functions which is expected to 
reduce headcount by 2600 by the end of 
2014 545 people had left the business with 
the majority of the reductions expected in 
2015 this programme is expected to result 
in restructuring charges of around  
£120 million of which £56 million was 
recognised in our 2014 results  
we anticipate annualised cost benefits of 
around £80 million from 2016 onwards 
with £50 million in benefits expected in 
2015 our total aerospace 2014 
restructuring activities cost £164 million  
of which £139 million was underlying
however in a complex and highlyregulated 
business we recognise that it will take  
some time for the full benefit of our cost 
programmes to feed through there are  
also a number of headwinds in our civil 
aerospace business associated with our 
future growth for example we have 
invested in the capacity required to deliver 
our record order book but delay in a number 
of our customers’ major programmes has 
meant some of this new capacity has come 
on stream before it is needed leaving us 
with underutilised production facilities  
we have also constructed a number of new 
worldclass facilities to replace older less 
productive plants for a period of transition 
we are carrying the cost of both the old  
and new facilities
group restructuring costs in 2014 were 
£188 million of which £149 million was 
underlying over the past two years the 
group has reduced indirect headcount  
by 18 we expect group underlying 
restructuring costs to be between £90  
and £100 million in 2015
cost performance will continue to be a 
major focus and as we rationalise and 
transform the group we have targeted a 
20 reduction in our footprint and a 
doubling of our lowercost country sourcing 
by 2020 we are now accelerating progress 
towards these targets 
cash we continue to focus on improving 
our free cash flow particularly in the face  
of nearterm headwinds our programmes 
to reduce product and aftermarket costs 
lower our headcount and to reduce our 
footprint all require upfront investment  
but will deliver cost and cash benefits in  
the medium term as revenue increases  
we expect to reduce our capital expenditure 
and rd as a percentage of sales the 
customer progress highlighted earlier is 
improving our operational performance  combined with increasing volumes this will 
enable us to reduce our inventory buffers 
while a great deal of attention has been 
focused quite rightly on the financial 
performance of the group it is important  
to recognise significant achievements in 
2014 that will support the group’s future 
profitable growth
1500 trent xwb 
engines are on order the first 
engines were delivered to  
qatar airways in 2014
in aerospace in december we were 
delighted to celebrate the first delivery of the 
trent xwb powering the new airbus a350 
xwb for launch customer qatar airways 
the trent xwb is the most fuel efficient 
large aero engine operating in the world 
today i would like to congratulate everyone 
at rollsroyce who has worked so hard  
over many years to support the successful 
delivery of this exceptional aircraft for 
which rollsroyce is the sole engine provider
at the farnborough international airshow  
in july we announced the seventh member 
of the trent engine family the trent 7000 
that will power the new airbus a330neo 
this new engine will incorporate technology 
from our most recent trents and will deliver 
a 10 improvement in specific fuel 
consumption and halve the noise energy 
output compared to the current engine on 
the a330 rollsroyce will be the exclusive 
engine supplier on the a330neo due to 
enter service in 2017
we have continued to bring new worldclass 
facilities on stream in 2014 these include 
the opening of our new advanced disc 
manufacturing facility at washington in  
the uk and the first production aerofoil 
from our new advanced aerofoil 
manufacturing facility at crosspointe 
virginia in the us 2014 saw the 
inauguration of our new large engine test 
bed in dahlewitz germany and the opening 
of a new marine customer training centre 
outside rio de janeiro in brazil
we marked a major milestone in the 
development of carbon titanium cti fan 
blades with the launch of a test flight 
programme on board a boeing 747 flying 
test bed cti technology delivers lighter fan 
blades that will be incorporated into future 
aero engines combined with a composite 
fan casing it forms a system that can reduce 
weight by up to 1500lb per aircraft the 
equivalent of seven passengers
in land  sea we have also continued to 
strengthen our portfolio bringing new 
technology to market across the division  
in september we unveiled the first of a  
new family of mediumspeed reciprocating 
engines for use on land and at sea the  
new bergen b3345 offers a 20 increase  
in power per cylinder while reducing fuel 
consumption emissions and operating 
costs it is our first new product to combine 
the engineering strengths of our traditional 
bergen engines operation and our new 
power systems business because of its 
greater power range the new engine 
increases our addressable market in 
mediumspeed engines by 20 
in the naval market two important new 
ships powered by our mt30 gas turbines 
were officially named the multimission 
destroyer uss zumwalt and the royal navy 
aircraft carrier queen elizabeth
in the rail sector power systems has 
developed an mtu hybrid powerpack that 
generates additional power through the 
braking control system this technology 
offers a fuel saving of up to 25 with a 
proportional reduction in emissions 
for offhighway vehicles mtu’s latest  
series 4000 engine has improved fuel 
consumption by 5 for a typical application 
this can represent a saving of up to 100000 
litres of fuel and reduction of 350 tonnes of 
co
2 emissions each year 
technology
we have continued to invest in our  
land  sea division bringing new 
technology to market across the portfolio 
in september we unveiled the first of a 
new family of mediumspeed reciprocating 
engines for power on land and at sea  
the new bergen b3345 offers a 20 
increase in power per cylinder while 
reducing fuel consumption emissions  
and operating costs 
more information 
on page 38
rollsroyce holdings plc annual report 2014 18
strategic report
chief executive’s review
continued mtu’s latest series 4000 
engine has improved fuel 
consumption by
5
in our nuclear business we were 
encouraged that in october the european 
commission approved the construction  
of the first new commercial nuclear power 
station to be built for a generation in  
the uk at hinkley point in somerset the 
commission concluded that new nuclear 
power is vital for britain’s energy security 
and will be key to reducing carbon emissions 
from the uk’s electricity industry hinkley 
point c is the first of at least 11 new reactors 
planned for the uk for which rollsroyce  
is well positioned to supply components 
systems and engineering services
31 university technology 
centres this research network 
extends relationships we have 
with worldleading universities
as the chairman said we continued to 
strengthen the governance of the group  
we expect the highest standards of 
behaviour from our employees and we  
have been explicit that we will not tolerate 
business misconduct of any sort the 
serious fraud office investigation into 
concerns about bribery and corruption 
involving intermediaries in overseas 
markets continues and we are cooperating 
fully with the investigating authorities  
lord gold is heading a review of our process 
and procedures regarding compliance and 
business ethics 
this year our global code of conduct has 
been ranked by the red flag group as third 
among those within the ftse 100 companies 
that were assessed following the rollout  
of our global code dilemmabased ethics 
training has been deployed to all  
our employees to ensure continuing 
attention on this important topic training 
in ethics and compliance will continue in 
2015 all employees will be required to 
certify annually that they have completed 
their training we will be setting similar 
standards for our supply chain through the 
publication of our supplier code of conduct 
responding to the difficult circumstances  
of 2014 has required fortitude and resilience 
from the talented men and women who 
work for rollsroyce i would like to thank 
them for their hard work and for the 
enthusiasm i encounter wherever in the 
company i travel i am grateful to our 
suppliers and partners who make such an 
important contribution to rollsroyce and 
share our commitment to continuous 
improvement i would like to thank our 
customers who continue to place their faith 
in our technology meeting their current  
and future needs is our highest priority
this year we held our inaugural trusted  
to deliver excellence awards to recognise 
rollsroyce teams who have achieved 
outstanding results for their customers  
the imagination passion and ability  
to execute demonstrated by all the finalists 
is inspiring you can read more about these 
awards on pages 42 to 43
returning our group to profitable growth 
will demand firm resolve and commitment 
and will take some time however as i have 
described in this review the business 
fundamentals of rollsroyce remain sound 
we have the right strategy and we are clear 
about the action that is required everything 
i know about this great company makes  
me confident that the team will rise to  
the challenge
john rishton
chief executive
12 february 2015
 strategically  
our two divisions  
address markets  
where longterm growth  
is assured and where 
increasingly sophisticated 
engineering solutions  
will be required”
19
strategic report annual report 2014 rollsroyce holdings plc 20
strategic report
technology and innovation  
are at the heart of rollsroyce  
we anticipate technology then 
create products and services  
that our customers need ahead  
of market requirements 
in 2014 we spent £12 billion gross 
in rd and filed for 600 patents
innovation and technology   
engineering strength 
our 15500 engineers along with our 
supply chain commercialise and deploy  
the continuous stream of science developed 
by our university partners into technology 
then products competitive technology 
comes from combining great people tools 
and processes these fundamental building 
blocks are used across our two divisions 
aerospace and land  sea we also 
continually invest in new talent and in 2014 
we recruited 354 graduates 254 of which 
went into engineering and 357 apprentices 
technical people are the lifeblood of the 
company our investment in technical and 
leadership training allows us to continuously 
develop worldclass professionals
innovation 
we have a track record over many years  
of creating new products and services and 
we continue to strive to be leading edge in 
everything we do innovation cannot be left 
to chance it needs to be encouraged 
managed selected and pulled through into 
products and services harnessing the total 
intellectual power of our people takes 
enthusiasm and effort our new innovation 
portal big ideas forums and open 
innovation challenge have been successful 
and each year we reward the most 
innovative ideas at our sir henry royce 
technology awards we look at innovation  
in terms of technology and services and  
also in the way we conduct engineering  
and manufacturing this ensures that  
we continuously simplify and improve 
processes in order to be efficient and  
remove waste 
research and development 
the strength of our current product portfolio 
results from consistent and longterm 
investment in rd and our ability to bring 
technology to industrial applications  
in addition to our extensive inhouse 
technology capability we have partnerships 
with worldleading universities in order to 
create new technology we continuously 
invest in our global network of 31 worldclass 
university technology centres utcs where 
we build the foundation for the next 
generation of products these technologies 
feed into our demonstration programmes 
where robust validation takes place before 
proceeding in a structured and controlled 
way into new production
£12bn 
rd investment
 
demonstrator programmes 
during 2014 progress was made on our 
many new technologies for example the 
carbon titanium fan has flown for the first 
time this year in the advanced lowpressure 
systems alps demonstrator a modified 
trent the composite fan system has been 
developed with the help of four utcs and 
five amrcs and will offer over 750lbs of 
weight saving on our future large engines 
we have demonstrated a new mobile mtu 
gas engine which has been in development 
since 2013 this highspeed gas engine offers 
a fuel alternative whilst maintaining the 
level of performance expected from our 
highspeed diesel engines at our dahlewitz 
site in germany we are building a new test 
facility for power gearboxes these 
gearboxes will be used on the next 
generation ultrafan engine and should offer 
a 25 improvement in fuel efficiency when 
compared to the trent 700 
 total as at end of 2014
our partnership in seven advanced 
manufacturing research centres amrcs 
bridges the gap between research and 
industrial application providing facilities 
for industrial partners and academics to 
develop new manufacturing technology 
for example innovative manufacturing 
techniques developed in our amrc in 
sheffield uk are now deployed in our 
stateoftheart disc facility in 
washington uk
our ‘vision’ approach
we look at technology acquisition 
over a 5 10 and 20year horizon 
vision 5
vision 5 describes nearterm technologies 
that are ready to introduce into our products 
for instance this year we have successfully 
demonstrated our low observability 
propulsion and exhaust system integration 
capability on the bae systems t aranis 
unmanned aerial vehicle on reciprocating 
engines our dualfuel injector design enables 
premixed high pressure gas combustion  
and allows the operator to switch from  
gas to liquid fuel during operation 
vision 10
vision 10 describes leadingedge validated 
technologies for application in the ‘medium 
term’ most of these are at demonstration 
level today and will feature in the next 
generation of products for example the  
lean burn combustion system for aero gas 
turbines has been in development for some 
years and offers a 60 reduction in the 
pollutant no
x and particulate matter smoke 
compared to year 2000 levels it will reach 
flight test in 2015 and is supported  
by the european clean sky programme 
vision 20
vision 20 describes emerging or as yet 
unproven technologies which may be 
applied across our product range in both 
aerospace and land  sea for example  
we are developing concepts for autonomous 
ships to reduce operating costs and radically 
simplify onboard facilities
21
strategic report market outlook
aerospace division
civil aerospace
we estimate that the global civil engine 
market will be worth approximately 
us1900 billion over the next 20 years  
with us1250 billion being for original 
equipment oe and us650 billion for 
aftermarket services over half of this value 
comprises engines for twinaisle airliners 
and large business jets
defence aerospace
the defence market opportunity over the 
next 20 years is us125150 billion in oe  
and us225250 billion in services
land  sea division
power systems
we estimate the offhighway reciprocating 
engine markets we address offer an 
opportunity of £500 billion over the next  
20 years for oe the total servicerelated 
market will offer a potential of around  
a third of that oe value or £150 billion
marine
we forecast a business opportunity 
excluding reciprocating engines across  
the offshore merchant and naval market 
segments over the next 20 years of  
£170 billion for oe and £80 billion for 
associated services
nuclear
the demand for missioncritical equipment 
systems and engineering services for  
civil nuclear could reach £220 billion over 
the next 20 years while the demand for 
associated reactor support services  
could amount to £140 billion over the  
same period 
the group has identified markets where our skills and 
technology add value for our customers and deliver value 
for shareholders as a longterm business we assess the 
market potential over a 20year horizon
† rounded to the nearest 100bn
through the customerfacing 
businesses that make up our two 
divisions we are delivering better 
power in the air on land and at sea
our technology skills and customer 
insight position us to have the right 
products and services today and  
for the future
aerospace potential  
for oe and services  
over the next 20 years 
us2300bn
†
land  sea potential  
for oe and services  
over the next 20 years
£1300bn
†
rollsroyce holdings plc annual report 2014 22
strategic report strategy
we are a power systems company competing globally we win 
in our chosen markets by focusing on and connecting three 
powerful themes customer innovation and profitable growth
by focusing on our customers  
and offering them a competitive 
portfolio of products and services 
we create the opportunity to grow 
our market share we have to 
make sure that we are not just 
growing but growing profitably 
that means ensuring our costs  
are competitive we look after  
our cash and we win right
placing the customer at the heart  
of our organisation is key we 
listen to our customers share 
ideas really understand their 
needs and then relentlessly focus 
on delivering our promises
this is our lifeblood we 
continually innovate to remain 
competitive to drive innovation 
we create the right environment 
– curious challenging unafraid  
of failure disciplined open
minded and able to change with 
pace most importantly we ensure 
our innovation is relevant to our 
customers’ needs
customer innovation profitable growth
people 
our people are the key enabler of our strategy we are committed to 
recruiting developing and retaining the best and to creating a climate 
for success we are building a businessorientated innovative and 
costconscious culture where our people feel connected to the needs  
of our customers the needs of our shareholders and the needs of our 
broader communities
see pages 44 to 47 for more information on how sustainability plays a pivotal role in the 
delivery of our strategy
23
strategic report we bring advanced technology 
to market through integrated 
power and propulsion systems 
and services for use in the air 
on land and at sea 
engineering excellence is a fundamental source of competitive 
advantage across the group our methods processes and 
experience enable us to deliver complex highvalue programmes 
our ability to optimise and integrate entire systems is a core 
competence informed by a close understanding of customer  
needs and decades of domain knowledge 
addressing complementary markets from a shared capability and 
technology base brings breadth and scale diversity and balance 
enabling us to invest efficiently and providing the resilience 
required to offset new project risk our manufacturing model  
is consistent across the group we only produce parts ourselves 
where we can create and sustain a competitive advantage 
the balance of our supply chain is built around close and  
longstanding relationships with key partners and suppliers  
a model that provides flexibility of capacity and secures access  
to worldclass capability some partners as well as supplying  
parts share in the risks and rewards of the whole programme  
from research and development to manufacture through risk  
and revenue sharing arrangements
services are an essential part of our business building customer 
relationships and providing revenue stability by moderating the 
effects of new equipment order cycles services offer strong growth 
potential and the opportunity to align incentives through longterm 
service contracts providing visibility of costs to our customers and 
helping us secure future revenues this is particularly the case  
in civil aerospace where contractual and air safety considerations 
mean that we have rights that secure a large part of the  
aftermarket spare parts business even where we do not have  
a totalcare® agreement 
the operation of our business model over decades has resulted  
in a substantial and growing installed base of engines at all stages 
of the product life cycle cash flows today from investments made 
in some cases many years ago support investment for the future 
we are focused on making this proven business model more 
effective through relentless focus on costs to generate the funds  
to sustain the investment necessary to remain competitive
business model
strategic report
24 rollsroyce holdings plc annual report 2014
connect technology  
to customer needs
our deep understanding of customer 
needs drives the development of new 
technologies and products
allocate capital to  
new growth
we operate a disciplined capital allocation 
process across the group we invest only 
where we believe we can create and 
sustain a competitive advantage and 
achieve a good return for shareholders
gas turbines
large  global
high
high
520 years
40 years
substantial and growing
aerospace 25
secure and maximise  
service opportunity
our equipment is in service for decades 
our deep design knowledge and inservice 
experience ensures that we are best 
placed to optimise product performance 
and availability
grow market share  
and installed base
our substantial order book for both 
original equipment and services provides 
good visibility of future revenues and 
provides a firm foundation to invest  
with confidence
nuclear
global 
high
lowmedium
20 years
40 years
growing 
aerospace  land  sea
power source
customer base
barriers to entry
investment required
development time
product life
service opportunity
invest in rd and  
skilled people
developing and protecting leadingedge 
technology and deploying it across our 
businesses allows us to compete on a global 
basis and creates high barriers to entry
design and make  
worldclass products
we differentiate on performance we win 
and retain customers by developing and 
delivering products that provide more 
capability and offer better throughlife 
value than those of our competitors
reciprocating engines
large  global 
mediumhigh
lowmedium
28 years
20 years
growing 
strategic report 26 rollsroyce holdings plc annual report 2014
strategic report
chief financial officer’s review
this has clearly not been an easy year 
however the group is fundamentally strong 
we are in the enviable position of having  
a £74 billion order book of products and 
services that will deliver revenue for decades 
to come we operate in markets with 
excellent longterm growth dynamics and 
high barriers to entry we are valued by our 
customers our innovative team is creating 
products at the forefront of technology we 
have set out firmly on the path to transform 
our industrial structure our objective now  
is to translate these product successes 
growth markets and internal transformation 
into attractive returns and cash flow in the 
medium term 
in 2014 we made good progress on our 
business transformation delivering both 
inyear improvements on our 4cs such as 
customer delivery performance and creating 
the mediumterm platform for improving 
margins and cash flow 
for example in aerospace we have reduced 
our aftermarket costs for our volume engine 
the trent 700 and also made good progress 
on our corporate jet and defence contracts 
over the past two years the group has 
reduced indirect headcount by 18 we also 
sold our energy gas turbines and compressor 
business to siemens on 1 december 2014
as i reflect on my new role 
as chief financial officer 
at rollsroyce i would like 
to underline the progress 
we’ve made in 2014 and 
outline my priorities for 
2015 and beyond
david smith 
chief financial officer accounting and technical skills which are 
critical in our complex business i will be 
working to deliver financial and non
financial kpis that are more forwardlooking 
and have a greater focus on the business 
fundamentals which are driving our cash 
and profit performance 
i will also be working to ensure that our 
communications with shareholders are  
clear consistent and helpful as part of this 
we have started to provide a mediumterm 
outlook and will continue to look at 
additional ways to communicate more 
clearly our share buyback programme  
is already underway and will return to 
we know we need to accelerate our efforts 
on cost and cash in november we 
announced a restructuring and cost 
reduction plan that will deliver £80 million 
in annualised savings and we will make 
further announcements at the appropriate 
time we will also look to reduce our 
facilities’ footprint increase our activities  
in lowercost countries pursue further 
aftermarket cost reductions and continue  
to make progress on inventory investment 
efficiency and cash management
a personal priority is strengthening and 
streamlining our financial controls and 
business information we have excellent 
summary 
2014 2013 change
order book £m
73674 71612 3
underlying revenue £m 14588 15505 6
underlying profit before tax £m 1617 1759 8
return on sales 115 118 03pp
underlying earnings per share 653p 656p 03p
full year payment to shareholders 231p 220p 5
reported revenue
†
13736 14642 6
reported profit before tax
†
67 1700 96
reported earnings per share
†
37p 733p 696p
net cash 666 1939 66
free cash flow £m 254 781 67
 underlying explanation is in note 2 on page 110 
† 2013 represented to reflect energy as a discontinued operation
all figures in the narrative of the strategic report are underlying unless otherwise stated
return on 
sales 
107
120
118
115
2011 2012 2013 2014 2010 2011 2012 2013 2014
group underlying 
profit before 
taxation £m
955
1157
1434
1759
1617
2010 2011 2012 2013 2014
group underlying 
revenue £m
10866
11277
12209
15505
14588
shareholders £1 billion in proceeds from  
the sale of our energy gas turbines and 
compressor business 
amid these changes there are certain 
fundamentals that we will continue  
to support these include 
• maintaining a strong balance sheet that 
gives confidence to our customers and 
enables our business to invest in future 
programmes 
• continuing to refine our capital allocation 
processes and invest in rd to develop  
the next generation of products and
• managing risk prudently including 
hedging our foreign currency exposures  
to reduce volatility
there’s no doubt that the recent changes  
in oil and commodity prices currencies  
and geopolitical strains have increased 
uncertainty we therefore need to plan 
cautiously while accelerating our business 
improvement activity in 2015 we expect 
underlying revenue to be flat overall and 
underlying profit before tax to be down 
somewhat reflecting the present phase  
of our business transformation we also 
expect free cash flow to be lower given  
our restructuring spend 
looking ahead our product portfolio 
transition will see rising deliveries of new 
civil engines that will significantly increase 
our installed base we will also continue to 
grow our land  sea businesses this and  
our investment in new technology and 
industrial transformation will constrain 
nearterm margins and cash generation 
however as we move towards the medium 
term and this growth and investment phase 
moderates we expect both margins and 
cash conversion to improve in line with our 
mediumterm guidance 
pages 95 to 148 
consolidated financial statements
27
strategic report financial review
2014 has been a mixed year during which underlying 
revenue fell for the first time in a decade reflecting reduced 
spending by our defence customers macro economic 
uncertainty and falling commodity prices 
group underlying revenue 
£14588m
group underlying profit before 
taxation
£1617m
group underlying income statement
£ million 2014 2013 change
revenue 14588 15505 917
profit before financing 1678 1831 153
net financing 61 72 11
profit before taxation 1617 1759 142
taxation 387 434 47
profit for the year 1230 1325 95
earnings per share eps 6531p 6559p 028
payments to shareholders 231p 220p 11p
gross rd investment 1249 1118 131
net rd charge 755 624 131
underlying profit before financing and 
taxation reduced 8 to £17 billion we  
saw a negative impact from lower volumes 
especially in defence and land  sea 
increased rd investment £140 million 
and higher restructuring charges  
£100 million a oneoff marine charge  
£30 million and adverse fx £49 million 
these factors were offset by an improved 
trading margin which included 
approximately £150 million benefit from 
improved retrospective t otalcare contract 
profitability £110 million deterioration  
in 2013 reflecting lower cost changing 
operating patterns and reduced contract 
risk trading margins in defence also 
underlying revenue reduced £09 billion  
to £146 billion a reduction of 6 of which 
3 is due to adverse yearonyear foreign 
exchange fx rate movements the 
remaining reduction reflects a 5 decline  
in original equipment oe revenue and  
a 1 decline in services revenue underlying 
services revenue continues to represent 
around half 48 of the group’s underlying 
revenue group services revenue included 
increases in defence aerospace and power 
systems partially offset by reductions in our 
marine nuclear and energy businesses
segmental analysis
revenue profit before financing
£ million 2014 2013 change 2014 2013 change
civil 6837 6655 182 942 844 98
defence 2069 2591 522 366 438 72
aerospace division 8906 9246 340 1308 1282 26
power systems 2720 2831 111 253 294 41
marine 1709 2037 328 138 233 95
nuclear 684 667 17 48 10 38
intrasegment 155 147 8 13 2 15
land  sea division excluding energy 4958 5388 430 426 539 113
energy 724 871 147 3 64 67
land  sea division 5682 6259 577 423 603 180
central costs 53 54 1
group excluding energy 13864 14634 770 1681 1767 86
group 14588 15505 917 1678 1831 153
rollsroyce holdings plc annual report 2014 28
strategic report improved driven by both cost reduction 
action and an improved mix in land  sea 
we incurred a loss at our bergen subsidiary 
£33 million reflecting weaker trading 
performance lower bonus and share 
incentive costs resulted in a saving  
of £178 million
pages 32 to 41  
further discussion of trading is included  
in the business reviews
underlying financing costs reduced by 15 
to £61 million reflecting reduced financial 
risk and revenue sharing arrangements 
rrsas liabilities and other improvements
underlying taxation of £387 million 
represents an underlying tax rate of 239 
compared with 247 in 2013 
page 160  
the group’s tax payments 
underlying eps was marginally lower  
at 6531p with the impact of the lower 
underlying profit after tax largely offset  
by the improvement in the underlying tax 
rate and a lower noncontrolling interest in 
power systems following daimler’s exercise 
of the put option in april 2014
at the annual general meeting on 8 may 
2015 the directors will recommend an issue 
of 141 c shares with a total nominal value  
of 141 pence for each ordinary share 
t ogether with the interim issue on 2 january 
2015 of 90 c shares for each ordinary share 
with a total nominal value of 90 pence this 
is the equivalent of a total annual payment 
to ordinary shareholders of 231 pence  
for each ordinary share further details are 
on page 162
net underlying rd charged to the income 
statement increased by 21 to £755 million 
reflecting a combination of increased  
net investment of £98 million and lower  
net capitalisation of £21 million due  
to the phasing of major new programmes  
in particular the certification of the  
trent xwb84 and £12 million lower net 
deferral of rrsa entry fees — see page 115 
the net investment spend represents 58 
of group underlying revenue although it is 
expected that this will reduce slightly in the 
future towards the longerterm target of 
around 5 our gross rd expenditure of 
£12 billion includes funded programmes
231p payment to shareholders
reported profit before tax
consistent with ifrs and past practice  
the group provides both reported and 
underlying figures we believe underlying 
figures are more representative of the 
trading performance by excluding the 
impact of yearend marktomarket 
adjustments principally the gbpusd hedge 
book in addition postretirement financing 
and the effects of acquisition accounting are 
excluded the adjustments between the 
underlying income statement and the 
reported income statement are set out in 
more detail in note 2 to the financial 
statements this basis of presentation has 
been applied consistently
the marktomarket adjustments are 
principally driven by movements in the 
gbpusd exchange rate which moved from 
165 to 156 during 2014
movement on other financial instruments 
primarily relate to the change in value of 
the put option on the power systems 
noncontrolling interest which has now 
been exercised
the effects of acquisition accounting  
in accordance with ifrs 3 are excluded  
from underlying profit so that all businesses 
are measured on an equivalent basis
costs associated with the substantial closure 
or exit of a site facility or activity are 
classified as exceptional restructuring and 
excluded
profits and losses arising on acquisitions 
and disposals during the year are excluded 
net financing on postretirement schemes  
is excluded from underlying profit and in 
2013 the cost of providing a discretionary 
increase to pensions was also excluded
appropriate tax rates are applied to these 
adjustments the net effect of which was  
profit before taxation
£ million 2014 2013
underlying 1617 1759
marktomarket adjustments on derivatives 1254 217
movements on other financial instruments 87 251
effect of acquisition accounting 142 265
exceptional restructuring 39 –
acquisitions and disposals 8 335
postretirement schemes 29 90
other including discontinued operations 7 5
reported 2013 restated to exclude discontinued operations 67 1700
underlying 
revenue 
£m
10866
11277
12209
14588
15505
2010 2011 2012 2013 2014
underlying profit 
before taxation 
£m
955
1157
1434
1617
1759
2010 2011 2012 2013 2014
net rd as a 
proportion of revenue 

47
46
47
48
58
2010 2011 2012 2013 2014
29
strategic report financial review
continued
 the group 
continues to maintain 
a strong balance sheet 
providing reassurance  
to our customers”
a £239 million reduction in the reported tax 
charge 2013 £54 million reduction the 
adjustment includes a £64 million reduction 
in the value of recoverable advance 
corporation tax recognised a reconciliation 
of the tax charge is included in note 5
balance sheet
intangible assets note 9 represent 
longterm assets of the group these assets 
decreased by £77 million with additional 
development contractual aftermarket rights 
certification and software costs being more 
than offset by annual amortisation charges
the carrying values of the intangible assets 
are assessed for impairment against the 
present value of forecast cash flows 
generated by the intangible asset the 
principal risks remain reductions in assumed 
market share programme timings increases 
in unit cost assumptions and adverse 
movements in discount rates there have 
been no significant impairments in 2014
property plant and equipment note 10
increased by £241 million due to the 
ongoing development and refreshment of 
facilities and tooling as the group prepares 
for increased production volumes
investments in joint ventures and associates 
note 11 remain stable as the share of 
retained profit was offset by dividends 
received
provisions note 18 largely relate to 
warranties and guarantees provided to  
secure the sale of oe and services the 
increase is largely a result of the recognition 
of restructuring costs
net postretirement scheme surpluses
deficits note 19 increased by  
£1348 million principally due to relative 
movements in the yield curves used to value 
the underlying assets and liabilities in 
accordance with ias 19 in addition the 
scheme rules on the largest uk scheme  
were amended during the year resulting  
in the surplus being recognised 
£544 million impact 
the group’s principal pension schemes 
adopt a low risk investment strategy that 
reduces volatility going forward and enables 
the funding position to remain stable 
interest rate and inflation risks are largely 
hedged and the exposure to equities is 
around 8 of scheme assets
net financial assets and liabilities note 17 
include the fair value of derivatives financial 
rrsas the put option on the noncontrolling 
interest of power systems and c shares the 
reduction primarily reflects the settlement 
of the put option £1937 million offset  
by a reduction in value of the foreign 
exchange derivatives £1137 million due  
to the strengthening of the us dollar
the usd hedge book increased by 4 to 
us256 billion this represents around four 
and a half years of net exposure and has an 
average book rate of £1 to us161
net t otalcare assets relate to longterm 
service agreement ltsa contracts and 
where appropriate the linked oe contract  
in the civil aerospace business including  
the flagship services product t otalcare 
these assets represent the timing difference 
between the recognition of income and 
costs in the income statement and cash 
receipts and payments the increase  
largely reflects high levels of linked trent 700 
and increasing trent 1000 engine sales in 
the year
summary balance sheet
£ million 2014 other changes
energy disposal
 note 25 2013
intangible assets 4804 77 106 4987
property plant and equipment 3446 241 187 3392
joint ventures and associates 539 6 56 601
net working capital 1134 229 393 970
net funds 666 1269 4 1939
provisions 807 108 34 733
net postretirement scheme surplusesdeficits 555 1348 – 793
net financial assets and liabilities 855 732 – 1587
other net assets and liabilities 827 294 – 533
net assets 6387 796 712 6303
other items
usd hedge book us billion 256 247
totalcare assets 2492 1901
totalcare liabilities 2013 includes £245m not previously included 687 559
net totalcare assets 1805 1342
customer financing contingent commitments
 gross 388 356
 net 59 59
rollsroyce holdings plc annual report 2014 30
strategic report customer financing facilitates the sale  
of oe and services by providing financing 
support to certain customers where such 
support is provided by the group it is almost 
exclusively to customers of the civil 
aerospace business and takes the form  
of various types of credit and asset value 
guarantees these exposures produce 
contingent liabilities that are outlined in 
note 18 the contingent liabilities represent 
the maximum aggregate discounted gross 
and net exposure in respect of delivered 
aircraft regardless of the point in time at 
which such exposures may arise
during 2014 the group’s gross exposure on 
delivered aircraft increased by £32 million 
due largely to the strengthening of the us 
dollar on a net basis exposures remained 
unchanged with a small reduction being 
offset by the exchange rate movement 
funds flow
movement in working capital – the increase 
reflects the growth of the net t otalcare asset 
offset by a reduction in the amount of 
customer deposits this increase compares 
to a modest decrease in the previous year 
which is primarily a result of the phasing  
of customer deposit utilisation
summary funds flow
£ million 2014 2013 change
opening net funds 1939 1317
closing net funds 666 1939
change in net funds 1273 622
underlying profit before tax 1617 1759 142
depreciation and amortisation 600 608 8
movement in net working capital 509 91 600
expenditure on property plant and equipment and intangible assets 1114 1172 58
other 88 231 319
trading cash flow 682 1055 373
contributions to defined benefit postretirement schemes in excess of pbt charge 152 36 116
tax 276 238 38
free cash flow 254 781 527
shareholder payments 482 417 65
share buyback 69 – 69
acquisitions and disposals 965 265 1230
net funds of businesses acquired 30 36 66
foreign exchange 19 43 62
change in net funds 1273 622
average net funds 38 350 388
free cash flow
£m
714
581
548
254
2010 2011 2012 2013 2014
781
expenditure on property plant and 
equipment and intangibles – the decrease 
reflects a reduction in additions to property 
plant and equipment £32 million 
participation fees and certification costs 
£26 million and software and other 
intangible assets £41 million offset by 
increased expenditure on contractual 
aftermarket rights £41 million
pensions – contributions to defined  
benefit pension schemes in 2014 included 
£33 million to uk schemes to fund the 
discretionary increases agreed in 2013  
the service cost included a pastservice 
credit of £31 million – largely relating  
to restructuring 2013 pastservice cost  
£71 million – largely relating to the 
discretionary increases above which  
is the main reason for the £116 million 
increase in the cash contributions in excess 
of the pbt charge
the group’s funding of its defined benefit 
schemes is expected to reduce by around 
30 in 2015 as a result of deficit funding 
requirements ending and the 
nonrecurrence of the payment for 
discretionary increases
shareholder payments – the increase 
reflects the c share issues in 2014 
£51 million increase and the  
power systems dividend to daimler  
£14 million increase
acquisitions and disposals include the 
payment of £2013 million including  
the fair value of derivatives held to hedge 
the cost for the additional 50 of power 
systems offset by £1027 million of  
net proceeds from the disposal of the  
energy business
31
strategic report civil aerospace 
defence aerospace
civil underlying 
revenue mix 
■ oe revenue 48
■ services revenue 52
civil underlying
revenue by sector
■ widebody 61
■ corporate  regional 39
civil
underlying revenue £m
4919
5572
6437
6655
2010
6837
2011 2012 2013 2014
defence underlying
revenue mix
■ oe revenue 35
■ services revenue 61
■ development 4
defence underlying
revenue by sector
■ combat 39
■ transport 51
■ uavtrainer 10  
defence
underlying revenue £m
2123
2235
2417
2591
2010
2069
2011 2012 2 013 2014
key highlights
• first trent xwb delivered and trent xwb97 version on test
• trent 7000 chosen to power new airbus a330neo 
• latest trent 1000 entered service on boeing 7879  
and trent 1000ten on test
• br725 selected for gulfstream g650er and ae 3007c2 
entered service on cessna citation x
key highlights
• lockheed martin agreement signed for 600 ae 2100 engines
• a330 mrtt now fully operational in uk and selected by 
france and singapore
• a400m transporter deliveries continue 
• business resizing to reduce costs and improve 
competitiveness is progressing
23900 employees
7000 employees
business review – aerospace
as a leading manufacturer 
of aero engines for the civil 
large aircraft corporate jet 
and defence markets the 
growing global requirement 
for cleaner more efficient 
better power continues to 
create opportunities for our 
aerospace division
tony wood 
president – aerospace
within the civil market we continue to see 
increasing numbers of people travelling  
by air the international air transport 
association iata reported that available 
seat kilometres a measure of civil air traffic 
grew by nearly 6 in 2014 and the longterm 
growth outlook remains at around 5 per 
annum for the foreseeable future 
in the defence market despite ongoing 
pressure on budgets aviation remains a 
vital component of defence forces around 
the world and we secured several important 
new orders during the year
in 2014 our engines powered the first 
deliveries of two new airliners one for each 
of our major airframe customers airbus 
and boeing we launched the seventh 
member of our trent engine family achieved 
major milestones for existing trent engine 
overview
rollsroyce holdings plc annual report 2014 32
strategic report programmes and made important 
announcements about civil engine 
technologies for the future 
business jet owners and operators continue 
to seek greater speed range and the highest 
levels of service 2014 saw rollsroyce 
selected by gulfstream for a new ultralong 
range business jet and we powered a new 
version of the fastest civilian aircraft in the 
world into service for cessna we continue 
to invest for the next generation of large 
business jet engines 
our defence customers are focused on 
extending the lives and improving the 
efficiency of their inservice aircraft 
rollsroyce is helping air forces to do more 
with less by delivering new or improved 
engines and services looking to the future 
we see opportunities to power new 
programmes such as the korean kfx 
combat aircraft and the anglofrench future 
combat air system
we continue to focus on reducing costs  
to support our strategy of customer 
innovation and profitable growth the 
investments we have made in new 
technology and capacity will enable us  
to increase output and improve efficiency 
delay in a number of customer programmes 
did result in some capacity being ready 
earlier than needed however these 
programmes are now coming on stream in 
june we opened a new facility  
in washington uk specialising in advanced 
manufacturing techniques and robotics 
which will halve the time to manufacture 
fan and turbine discs we are accelerating 
our plans to consolidate older facilities and 
transition to newer ones towards the end  
of the year we announced a programme to 
further improve operational efficiency and 
reduce costs across the aerospace division 
over the next 18 months 
although revenue remained broadly flat 
through 2014 due to current market 
conditions and lower defence spending  
our cost reduction actions have yielded 
benefits during the year and laid the 
foundations required to support midterm 
margin improvement for the division 
civil aerospace 
performance review
who we are
the civil aerospace business is a major 
manufacturer of aero engines for the 
commercial large aircraft and corporate jet 
markets we power 35 types of commercial 
aircraft and have more than 13000 engines 
in service around the world 
financial review
the civil order book increased 5 our net 
order intake was £117 billion aftermarket 
services now constitute 31 of the civil 
order book
underlying revenue grew 3 up 4 at 
constant foreign exchange on 8 growth  
in oe that was partially offset by a 1 
decline in services oe growth was primarily 
driven by a ramp up in trent 1000 engine 
production this was partially offset by  
a 9 reduction in business jet engine 
deliveries the decline in services reflects  
the expected 24 decline in the rb211 
programme aftermarket revenue from  
our trent fleet increased 6
underlying profit improved by 12  
driven by higher volumes and improved 
aftermarket margins profit benefited from 
approximately £150 million in improved 
retrospective totalcare contract 
profitability reflecting lower cost changing 
operating patterns and reduced contract 
risk profit also benefited from lower 
commercial and administrative ca  
and bonus costs this was partially offset  
by £63 million in higher restructuring  
costs and £151 million in higher rd costs 
england 18 
germany 3 
scotland 2
singapore 2
 multiple aerospace locations
key 
 aerospace locations 
 corporate locations 
 aerospace and corporate
aerospace locations
33
strategic report dahlewitz germany representing an 
investment of €65 million an additional  
test bed for future extralarge engines of  
up to 150000lbs thrust was also opened  
in dahlewitz in november we maintained 
our leading position in the business jet 
market our br725 was selected to power 
gulfstream’s new ultralongrange business 
jet the g650er the year also saw the entry 
into service of the world’s fastest civilian 
aircraft the ae 3007c2powered citation x 
to support operators of rollsroyce powered 
business jets we continued to expand our 
global network of authorised service 
centres the number of engines powering 
corporate aircraft covered by our 
corporatecare® programme reached more 
than 1600 the level of totalcare coverage  
in the commercial transport installed engine 
base increased to 83 this year and 210 
incremental corporate jets were signed  
up to our corporatecare programme 
looking ahead
in support of our future growth strategy  
we will make investments that enable us  
to deliver our significant order book and 
develop the next generation of civil engines 
with new technologies advanced 
manufacturing techniques and more 
efficient processes
we will develop totalcare in line with 
changing market requirements for services 
we will leverage our worldclass data 
management capability through our newly 
created controls and data services business 
we will remain focused on the 4cs and will 
embed a modern dynamic and ethical 
culture across all areas of the business 
defence aerospace
performance review
who we are
we are the leading engine maker for the 
military transport market and the second 
largest provider of defence aeroengine 
products and services globally defence  
has 16000 engines in service with  
160 customers in over 100 countries
business review – aerospace
continued
civil aerospace – key financial data
2010 2011 2012 2013 2014 
order book £m
48490
3
51942
7
49608
4
60296
22
63229
5
engine deliveries 846 962 668 753 739
underlying revenue £m
4919
10
5572
13
6437
16
6655
3
6837
3
underlying oe revenue £m 1892 2232 2934 3035 3265
underlying service revenue £m 3027 3340 3503 3620 3572
underlying profit before financing £m
392
20
499
27
743
49
844
14
942
12
 all years before 2012 include iae order book and engine deliveries include iae v2500
the investments we are making in rd and 
restructuring will support future  
profitable growth 
in 2015 we expect revenue between £70 
and £73 billion with continued growth in 
trent xwb and trent 1000 oe sales and good 
growth in aftermarket revenue we expect 
this to be partially offset by fewer trent 900 
and trent 700 sales we expect profit to be 
between £800 and £900 million as the 
retrospective totalcare accounting 
adjustments do not repeat at similar levels 
this guidance is based on 2014 average 
exchange rates
our year
we have over 50 of the engines on order 
for the widebody airliner market a number 
of developments during 2014 helped to 
consolidate our position as the leading 
supplier in this sector
the first airbus a350 xwb aircraft powered 
by our trent xwb engines was delivered to 
launch customer qatar airways at the end 
of the year marking the start of our largest 
production programme earlier in july we 
ran the more powerful 97000lb thrust 
version of the trent xwb for the first time 
this version will power the larger airbus 
a3501000 due to enter into service in 2017 
in june emirates announced the 
cancellation of its order for 70 a350 xwb 
aircraft this was partially offset by new 
orders and at the end of the year the  
trent xwb order book stood at more than 
1500 engines
the latest version of the trent 1000 entered 
into service in july powering boeing 7879 
dreamliners for air new zealand and ana 
work progressed on the trent 1000ten 
which will be available from 2016 and will 
be capable of powering all variants of the 
dreamliner 
airbus received the 1500th trent 700 in 
august 20 years after the first engine was 
delivered rollsroyce powers 58 of the 
airbus a330s currently in service or on order 
a new more fuelefficient version the 
a330neo will be exclusively powered by  
our new trent 7000 engine by the end  
of the year we had received commitments 
for trent 7000 engines to power  
120 a330neo aircraft this included an  
order from the major us airline delta for  
25 trent 7000powered a330neos together 
with 25 trent xwbpowered a350900s
1500 trent xwb 
engines have been ordered 
throughout 2014 we have been engaged  
in trent 900 sales campaigns to power new 
orders for airbus a380s decisions on engine 
choice have yet to be made in these ongoing 
campaigns we continue to work closely 
with airbus to support the future of this 
important programme
we took significant steps in the 
development of our future engine 
programmes in february we announced 
two innovative new engine designs the 
advance turbofan and ultrafan which  
will feature a power gearbox these will  
be available from 2020 and 2025 
respectively a new test bed for power 
gearboxes is to be built at our site in 
rollsroyce holdings plc annual report 2014 34
strategic report defence – key financial data
2010 2011 2012 2013 2014 
order book £m
6506
1
6035
7
5157
15
4071
21
4564
12
engine deliveries 710 814 864 893 744
underlying revenue £m
2123
6
2235
5
2417
8
2591
7
2069
20
underlying oe revenue £m 1020 1102 1231 1385 816
underlying service revenue £m 1103 1133 1186 1206 1253
underlying profit before financing £m
309
22
376
22
395
5
438
11
366
16
financial review
the defence order book grew 12 in 2014 
the first increase since 2010 total order 
intake increased 55 to £254 billion from 
£164 billion in 2013 
underlying revenue fell 20 down 18  
at constant foreign exchange reflecting a  
41 decline in oe partially offset by  
4 growth in aftermarket services oe 
reductions were due to lower volumes 
across several programmes including major 
deliveries in 2013 of two export contracts 
that were nearing completion ej200 to 
saudi arabia and adour to india services 
revenue grew modestly as liftsystem™ and 
tp400 maintenance started to ramp up 
a smaller decline in underlying profit of  
16 down 14 at constant foreign 
exchange reflects significant cost reduction 
actions and the favourable mix shift 
towards aftermarket which represented 
61 of defence revenue profit also 
benefited from lower ca and bonus costs
in 2015 we expect revenue of between  
£19 and £21 billion and profits of between 
£360 and £410 million based on average 
2014 exchange rates cost reduction activity 
will continue across our supply chain 
operational footprint headcount and 
service provision 
our year
customers in our principal markets of north 
america and europe face continued pressure 
from constraints on government defence 
spending as a consequence pricing and 
innovation have become even more 
important as our customers look for ways  
to do more with less 
in order to be closer to our customers whilst 
reducing cost we have concentrated our uk 
maintenance repair and overhaul activity 
into one site in bristol we also moved 
support for the rollsroyce liftsystem® to 
indianapolis to support the f35b lightning 
ii aircraft programme as it progresses to 
initial operating capability with the us 
marine corps in 2015 the f35 programme 
continues to ramp up with orders received 
for production and support of the 
liftsystem in 2014 totalling us548 million 
we secured a major longterm agreement 
with lockheed martin worth up to  
us1 billion to supply up to 600 ae 2100 
engines for the c130j aircraft in addition to 
over us200 million in support contracts for  
ae 2100 engines deliveries were made to 
turkey france germany and the uk of the 
tp400powered airbus a400m transport 
aircraft the 100th tp400 production engine 
was delivered in november and in the same 
month we announced an £18 million 
investment in facilities at bristol to support 
this programme 2014 saw good progress in  
the tanker aircraft market where we are  
a shareholder in airtanker which operates  
the a330 multi role tanker transport mrtt 
on behalf of the royal air force in 2014  
the a330 mrtt was also selected by the 
defence forces of france and the republic  
of singapore 
there was a softening of demand in the  
civil helicopter market and this impacted 
our engine manufacturing load however  
a longterm agreement was signed to install 
upgraded m250 engines in future bell 
407gx helicopters the m250 turboprop 
variant was also selected by jiangsu astar 
of china to power its extra ea500 aircraft  
in a deal worth over us50 million
service delivery contracts worth  
us1843 million were secured with  
defence customers globally many of which 
will provide our popular missioncare® level 
of engine support we have further 
improved the time on wing for our v22 
osprey customers delivering a 30 
reduction in support costs the t56 engine 
enhancement kit aimed at legacy c130 
hercules and p3 customers was certified by 
the us air force and has exceeded fuel 
efficiency targets the us navy declared 
initial operational capability for the new 
t56powered e2d advanced hawkeye 
airborne early warning aircraft
in the unmanned aircraft market our 
stealthy integrated propulsion system 
successfully demonstrated its capability  
in the second round of flight trials of the 
uk’s taranis demonstrator our ae 3007 
engine also powered the us navy’s triton 
unmanned aerial system on its first 
transamerica flight we were named a 
‘superior supplier’ by both the us navy  
and us defense logistics agency in 2014 
and recognised by northrop grumman for 
our support of its global hawk unmanned 
aerial vehicle programme
together with snecma we signed an 
anglofrench agreement for further  
funded studies as part of the future  
combat air system
looking ahead
we are focused on maintaining our leading 
position in the transport and patrol markets 
and will continue to invest in the industrial 
and technological capability to support 
future growth in this area we are actively 
engaged in offering propulsion solutions  
to customers in india turkey and korea as 
they pursue ambitions for indigenous 
combat aircraft programmes 
we anticipate continued pressure on 
defence budgets and remain committed to 
improving both the service lives of products 
and our cost performance cost reduction 
activity will continue across our supply 
chain operational footprint and service 
provision ensuring our business is well 
placed for the future in the defence sector
35
strategic report  
business review – land  sea
as the world’s population 
expands and becomes  
more affluent as trade 
increases and we travel 
more the requirement  
for the technology produced 
by our land  sea division 
will grow 
lawrie haynes 
president – land  sea
according to the world bank approximately 
200 million people per year will join the 
middle classes in the decades ahead 
requiring the type of power that we deliver 
to support their rising living standards  
and to transport the goods they will buy 
our land  sea division provides power  
for a wide range of vehicles and vessels  
on land we supply engines to power vehicles 
as varied as locomotives battle tanks and 
mining trucks applying worldleading 
technology to set new standards of fuel 
efficiency we also deliver distributed power 
generation and support the world’s civil 
nuclear power industry at sea we supply 
2013 2014
power systems
underlying revenue £m
2831
2720
power systems 
underlying
revenue mix 
■ oe revenue 70
■ services revenue 30
power systems 
underlying 
revenue by sector
■ marine 39
■ industrial 20
■ energy 28
■ defence  other 13
power systems
key highlights
• nearly 1000 mtu rail powerpacks contracted by pesa
• launch of new efficient bergen b3345 mediumspeed engine
• new mtu onsite energy 4000 natural gas engine 
• mtu and weir agree to develop power systems for hydraulic 
fracking industry
10700 employees
marine
key highlights
• largest ever ut vessel designed
• 40 years of leadership in offshore vessels celebrated
• naming of hms queen elizabeth and launch of uss zumwalt
• service network further expanded
marine
underlying revenue £m
2037
1709
2013 2014
marine underlying 
revenue mix 
■ oe revenue 63
■ services revenue 37
marine underlying 
revenue by sector
■ naval 22
■ merchant 19
■ oﬀshore 59  
6400 employees
nuclear
key highlights
• new propulsion plant design submitted for vanguard class 
replacement submarine
• us regulatory approval granted for spinline™ ic technology
• business developed across us europe including uk 
programme and asia
nuclear
underlying revenue £m
667
684
2013 2014
nuclear underlying
revenue mix 
■ oe revenue 37
■ services revenue 63
nuclear underlying
revenue by sector
■ submarines 73
■ civil nuclear 27
3900 employees
overview
  following the creation of 
the land  sea division in 
2014 information on a 
comparable basis is not 
available prior to 2013
rollsroyce holdings plc annual report 2014 36
strategic report  
engines propulsion and advanced 
engineering products for craft ranging from 
submarines to complex anchor handlers and 
seismic vessels used in the offshore oil  gas 
industry this broad portfolio of products 
and services has direct relevance to the 
longterm demand for better power in our 
fastchanging world 
whereas the power supplied from our 
aerospace division is based on gas turbine 
technology our land  sea division is to  
a large degree focused on reciprocating 
engines our highspeed reciprocating 
engines go to market under the mtu brand 
and mediumspeed engines are from bergen 
although the longterm requirement for  
our technology is certain a number of the 
markets that we address are volatile during 
2014 sharp falls in oil and other commodity 
prices caused a number of our customers  
to delay or cancel orders in particular this 
has affected parts of our power systems and 
marine businesses power systems was  
also affected by the trade sanctions imposed 
by the european union on russia 
on land business has grown across our 
defence power generation and services 
markets and we have had success in 
launching innovative products in our mtu 
onsite energy range to provide secure clean 
power for industrial applications we 
continue to invest in skills and capability  
in our civil nuclear business ahead of 
significant growth in the world’s nuclear 
power capacity although this business is 
currently relatively small for rollsroyce  
we already provide components systems  
or services to more than half the world’s  
435 operating reactors enabling safe and 
efficient power generation 
at sea our naval business has done well 
despite continued pressure on defence 
budgets nuclear reactors designed and 
manufactured by us have been powering 
the royal navy’s nuclear submarine fleet  
for the last 55 years and our engineers are 
currently designing the next generation  
for the fleet of the future 
the division is firmly focused on cost 
reduction and the management of cash  
in all areas we have rationalised a number 
of our marine facilities and this work will 
continue in the year ahead we will also 
drive improvement in cost through better 
supply chain management and continuing 
to move more of our production to lower
cost countries we will see further benefits 
from this during the coming year 
during 2014 we acquired the remaining 
interest in rollsroyce power systems from 
daimler power systems extends our 
portfolio and adds deep technical 
knowledge of highspeed engines and fuel 
injection systems it also extends the scale 
and scope of our market presence 
we have strong longterm relationships  
with customers deep product knowledge 
powerful and clean engines efficient 
propulsion system designs and an 
established global network these linked  
to a truly experienced workforce provide 
remarkably strong roots from which the 
land  sea division can grow
1 in 5 of the world’s 
shipping vessels has rollsroyce 
equipment installed
land  sea locations
key 
 land  sea locations 
 corporate locations 
 land  sea and corporate
finland 2
france 2
germany 10
italy 2
netherlands 2
norway 8
poland 2
spain 2
united kingdom 4
 multiple land  sea locations
land  sea locations
37
strategic report power systems
business performance review
who we are
the business consists of the mtu mtu 
onsite energy bergen and l’orange product 
ranges mtu highspeed engines and 
propulsion systems power ships railway 
locomotives defence and heavy offhighway 
vehicles they are also used for applications 
in the oil  gas industries diesel and gas 
genset systems from mtu onsite energy 
deliver heat and power bergen medium
speed engines are used in both marine and 
landbased power generation applications 
l’orange is a worldleading specialist 
company that designs and manufactures 
complex fuel injection systems for large 
engines 
financial review
the power systems order book grew 2 
order intake was £26 billion 
underlying revenue declined 4 mainly due 
to adverse foreign exchange effects growth 
in defence and power generation was offset 
by substantially lower sales to european 
construction industrial and agricultural 
customers marine revenue also declined 
driven by weaker yacht markets as in 
previous years revenue was biased towards 
the second half 
underlying profit declined 14 due to 
adverse foreign currency effects and losses 
in the bergen business profit benefited from 
lower ca and bonus costs
in 2015 we expect revenue between  
£25 and £275 billion and profit between 
£200 and £250 million we expect growth  
in the industrial power generation and 
business review – land  sea
continued
power systems – key financial data
2013 2014 change 
order book £m 1927 1971 2
underlying revenue £m 2831 2720 4
underlying oe revenue £m 2004 1893 6
underlying services revenue £m 827 827 –
underlying profit before financing £m 294 253 14
following the creation of the land  sea division in 2014 information on a comparable basis is not available prior to 2013
two projects further highlighted the 
synergies between our marine and power 
systems businesses as part of a rollsroyce 
ut ship design we supplied mtu diesel
electric propulsion systems and onboard 
power generators for two platform supply 
vessels for chinese shipbuilder cosco and  
in brazil mtu engines were specified for 
rollsroyce ut 535e oilspill response vessels
sales in the european construction 
industrial and agriculture sectors were 
substantially lower in 2014 compared with 
the high volumes ordered in 2013 sharp 
falls in commodity prices led customers  
in the mining and oil  gas industries to 
delay or cancel orders for oe 
the energy business for highspeed engines 
showed stronger growth in the higher power 
ranges and in the market for packaged mtu 
onsite energy power systems for example  
in data centres and other industrial 
applications we introduced an upgraded 
series 4000 l64 natural gas engine with 
improved efficiency 
in the mediumspeed market served by the 
bergen range sales decreased nevertheless 
we see an ongoing trend towards gas fuel 
one example is a 100mw power plant in 
mozambique where bergen will deliver 
gasdriven b3540 generating sets
2014 saw an improvement in our land 
defence business this was helped by a 
production increase for the german infantry 
fighting vehicle the mtupowered puma 
growth in the market for injection systems 
made by l’orange continued in 2014 driven 
by increased demand for injection systems 
used by dualfuel engines
looking ahead
we will invest in future technologies such  
as gas engines for commercial marine 
applications and are configuring our 
different engine series to meet tougher 
emissions standards in europe and north 
america at the same time we will continue 
to improve efficiency and maintain our 
focus on costs and cash in all areas 
commercial marine end markets offset by 
lower revenue from defence customers 
particularly naval marine we expect profit 
headwinds from a deteriorating mix we  
are taking actions to improve the operating 
performance and cost controls at bergen 
our guidance is based on 2014 average 
exchange rates
our year 
slower growth in eurozone countries and 
emerging economies presented challenges 
to our business in 2014 however the 
breadth of our portfolio presented 
opportunities for growth in some parts  
of the business
our naval marine business benefited from 
stronger defence budgets in asia and an 
increased demand for security at sea in  
the region this resulted in orders to power 
several types of military vessels 
the market for the commercial marine 
application of both our medium and 
highspeed diesel engines recovered in 2014 
the demand for megayachts weakened in 
2014 due to fewer vessels being built 
particularly in europe 
2014 saw the launch of a new family of 
mediumspeed engines for the marine 
market with future variants for landbased 
power generation the bergen b3345 uses 
diesel or gas fuel and features a new 
modular design that can be developed to suit 
a wide range of ship types it uses less fuel 
has lower emissions and produces 20 more 
power per cylinder than the previous bergen 
range together with our marine colleagues 
we secured orders for it to power two ships 
with the first entering operation in 2015 
there is also strong interest from the 
merchant vessel market
rollsroyce holdings plc annual report 2014 38
strategic report  a ship fit for a queen” 
was how first sea lord sir george 
zambellas described the new aircraft 
carrier for the royal navy at its naming 
ceremony held at rosyth uk in july 2014
hms queen elizabeth has two rollsroyce 
mt30 gas turbines as main power units 
and they drive rollsroyce propellers that 
each weigh 33 tonnes and measure seven 
metres in diameter 
improving competitiveness remains a key 
priority for the marine business and we took 
important steps in the year including the 
announcements of facility restructuring  
or closures in south korea us uk norway 
and sweden to consolidate our 
manufacturing activities at fewer locations 
we made strong progress in improving the 
external supply chain management and 
reducing our indirect headcount
we are narrowing our product portfolio by 
focusing on the products that provide the 
most return to the business and add most 
value to our customers we have exited 
noncore product lines such as well 
intervention equipment used for extracting 
oil from mature wells
we continue to focus on efficiency and cost 
reduction addressing areas including our 
supply chain operational footprint and 
indirect headcount we have reduced the 
number of suppliers to marine by almost 
40 in the last four years half of that in 
2014 and reduced indirect headcount  
by more than 500 people over the past  
two years
marine 
business performance review
who we are
marine supplies complex propulsion and 
handling systems to the maritime market 
across three distinct sectors offshore 
merchant and naval we have more than 
4000 customers and our equipment is 
installed on around 25000 vessels
we have an extensive range of technology 
for propulsion and cargo handling that 
allows us to provide fully integrated systems 
for a variety of ship types
our capability in ship design means we can 
also combine our technology into complex 
vessels where rollsroyce technology can 
account for around 40 of the total value  
of a typical offshore vessel and up to 10  
of a high specification naval combatant
as part of the land  sea division we now 
also offer mtu highspeed diesel engines as 
part of our propulsion systems particularly 
for naval craft ferries and offshore vessels 
financial review 
the marine order book declined 3 in 2014 
with a 1 reduction in order intake to  
£182 billion at constant exchange rates  
the order book increased 6
underlying revenue decreased 16 down 
9 at constant foreign exchange reflecting 
a 17 decline in oe and a 15 decline in 
services oe reduction was driven by a 
combination of pricing and the expected 
decline in offshore driven by 2013’s weak 
order intake service revenue declined in 
offshore and merchant as ship owners 
deferred overhaul and maintenance 
underlying profit fell 41 excluding foreign 
exchange translation and a oneoff charge  
of £30 million to cover the resolution of a 
quality issue profit declined 25 as a result 
of lower revenue and an adverse mix 
reflecting pricing pressure and lower 
services revenue the business also incurred 
restructuring costs as it continued to 
streamline its global footprint reduce 
indirect headcount and consolidate 
manufacturing activity profit benefited 
from lower ca and bonus costs
in 2015 we expect revenue between  
£145 and £165 billion and profit between 
£90 and £120 million we anticipate that the 
market will remain challenging in the short 
term reflecting external factors particularly 
in offshore we will accelerate our cost 
reduction focus on our footprint our supply 
chain and our overhead costs in order to 
drive a more competitive business while 
also adapting to volume risks our guidance 
is based on 2014 average exchange rates
our year
2014 saw continuing challenges in the 
global maritime market and there is a 
mixed picture across the market segments 
in which we operate in the offshore support 
sector demand was encouraging for 
sophisticated anchor handling vessels 
including our own ut ship designs which 
incorporate a wide range of rollsroyce 
technology however the rapid decline in  
the price of oil in the second half of the year 
dented confidence in the oil  gas industry 
slowed demand and order intake as we 
approached year end a trend we expect  
to continue into 2015
in merchant shipping many owners 
continued to delay investment in new  
ships and equipment or are extending 
maintenance intervals
marine – key financial data
2013 2014 change 
order book £m 1622 1567 3
underlying revenue £m 2037 1709 16
underlying oe revenue £m 1288 1070 17
underlying service revenue £m 749 639 15
underlying profit before financing £m 233 138 41
2013 figures restated due to transfer of submarines to nuclear business
39
strategic report at sea 
for 55 years we have been designing  
and manufacturing the reactors that  
power the royal navy’s fleet of nuclear 
submarines in 2014 we submitted  
designs to our customer for the next 
generation of propulsion plant
on land 
our nuclear business currently provides 
components systems and services  
to over half the world’s 435 operating  
civil nuclear reactors 
we are streamlining our global footprint 
and have consolidated manufacturing of 
some key products either into fewer 
locations or into the external supply chain 
our programmes to improve competitiveness 
will continue throughout 2015 and beyond 
as we aim to manage the impact of a 
slowdown in the oil  gas sector further 
changes to the structure of the business  
are planned
in the commercial market our utdesign 
celebrated its 40th successful year – it is the 
benchmark ship design for the offshore oil  
gas industry with almost 800 now in service 
or on order we continue to lead ship 
innovation in this sector and this year we 
contracted to supply the largest ever vessel 
the ut 777 for island offshore this vessel is 
being built in japan to a high specification 
and will be deployed on drilling operations 
in the arctic 
offshore which accounts for around two
thirds of our business responding to the 
uncertainties caused by the significant 
decrease in oil prices over recent months
nuclear 
business performance review
who we are
rollsroyce manages all aspects of  
nuclear plant design safety manufacture 
performance and throughlife support  
for the uk submarine programme
in the civil nuclear market we provide 
nuclear reactor vendors and utility operators 
with integrated longterm support services 
and solutions spanning the whole reactor 
life cycle from concept design through to 
obsolescence management and plantlife 
extension 
we have been a key player in the nuclear 
industry for over 50 years with expertise  
in component manufacturing licensing 
project and supply chain management  
as well as worldclass engineering
financial review 
the order book for the continuing business 
declined 4 reflecting lower order intake 
following the receipt of a multiyear 
submarines contract in 2013
underlying revenue increased 3 driven  
by good growth in the civil nuclear services 
business which has been the focus of recent 
acquisitions our services capabilities 
include remote inspection plantlife 
extension and obsolescence management 
and these performed well in 2014
underlying profit increased £38 million 
including £20 million from better operating 
performance lower ca and bonus costs 
and a nonrepeat of 2013 onetime charges 
in 2015 we expect revenue between  
£670 and £730 million and profit between 
£40 and £50 million this is based on 2014 
average exchange rates
naval continued to perform well we are 
contracted to a number of key international 
programmes which to date have been largely 
unaffected by defence budget cuts these 
include the uk type 26 frigates and the us 
navy’s littoral combat ship and shipto
shoreconnector hovercraft programmes 
we also delivered the first mt30 to the 
republic of korea navy for the first of its 
eight new frigates other highlights were  
the naming of the us navy’s sophisticated 
multimission destroyer uss zumwalt and 
launch of the royal navy’s aircraft carrier 
hms queen elizabeth both of which are 
powered by our mt30 gas turbine
our services business continues to adapt  
to support our customers’ needs and  
this year we expanded our global workshop 
network with a new facility in bergen 
norway
looking ahead
ship efficiency and ship intelligence where 
the smart use of data in more complex ships 
will improve efficiency will be key market 
drivers in the future as will the demand for 
more environmentallyfriendly power and 
propulsion systems to drive down the costs  
of operating ships 
we are strongly positioned to provide efficient 
solutions and have the necessary integration 
capability as ships become more complex in 
the future
our unified bridge which entered service 
recently is one example of the type of 
intelligent control system that we believe will 
become commonplace on new vessels over 
the next five years
in the near term we expect the market to 
remain challenging especially in the offshore 
sector where we may see project deferrals 
and temporary layups of vessels as they come 
offcharter
we have begun to transform our business to 
improve our competitiveness in all areas and 
this programme will continue again focusing 
on consolidation of manufacturing our 
external supply chain and reducing our 
overhead costs we will adapt to the market 
conditions in our biggest market sector 
rollsroyce holdings plc annual report 2014 40
strategic report
business review – land  sea
continued our year
in 2014 we made progress on our longterm 
projects for the uk submarine programme 
we submitted the design of the new 
propulsion plant for the vanguard class 
replacement submarine for customer 
approval construction of the core 
manufacturing facility in derby uk has 
progressed well and we successfully 
introduced several innovations to the 
programme which brought cost savings  
for our customer as part of the foundation 
contract designed to deliver savings of  
£200 million over ten years our support to 
the royal navy submarine flotilla is mission 
critical and contributes to maintaining the 
uk’s continuous at sea deterrent 
during 2014 we performed well against  
our strategic intent of growing a global  
civil nuclear business as a technology
independent partner to the industry 
civil nuclear power is increasingly important 
to the energy policy of a growing number of 
countries and regions such as china india 
middle eastern countries and central and 
eastern europe increased focus on low
carbon electricity generation and security  
of energy supply continued to drive demand 
for the upgrade plantlife extension and 
replacement of nuclear capacity more 
countries are considering adopting nuclear 
power for the first time with governments 
seeking to develop a nuclear industrial and 
supply chain strategy designed to benefit 
local economies and capability turkey and 
poland being examples
for the uk civil nuclear new build 
programme we continued to carry out early 
works to support developers and operators 
and we continue to recruit and develop 
capability in line with market growth 
projections for future years the uk has one 
of the largest new build programmes in the 
western world with 11 reactors expected to 
be built by 2030 european union 
commission approval in 2014 of the 
investment contract for the first new reactor 
to be built at hinkley point c in somerset 
was a significant milestone
during the year we were awarded a contract 
by fortum the owner and operator of the 
loviisa nuclear power plant in finland to 
modernise the safety and nonsafety 
instrumentation and control ic systems 
we also received us nuclear regulatory 
commission licensing of spinline our 
safetycritical ic technology and this  
will help us access new markets 
we won a contract to supply and 
commission pressure transmitter 
technology for the flamanville 3 reactor  
in france and continued to deliver against 
our customer commitments on the world’s 
largest ic upgrade of the 20strong french 
fleet of reactors we continued to be 
successful in china as an important 
supplier to the world’s largest nuclear 
programme 
we introduced equipment obsolescence 
services and engineering support to new 
customers in the uk france belgium  
and south africa we also provided reactor 
inspection services to edf energy’s uk 
operations
looking ahead
our priorities will be focus on customers 
winning new orders and highquality 
delivery a key feature will be continuously 
improving operational efficiency and 
performance as we expand our products 
and services and the markets in which  
we operate we will build on our 
manufacturing capability engineering 
excellence and supply chain relationships  
to ensure that we contribute positively to 
new build programmes in the uk and other 
international markets 
we will focus on further extending the suite 
of products and services that we offer to 
operational reactor utilities to enable them 
to achieve safe efficient and reliable lifetime 
operations while enabling us to further 
grow our nuclear services presence 
nuclear – key financial data
2013 2014 change 
order book £m 2617 2499 4
underlying revenue £m 667 684 3
underlying oe revenue £m 236 254 8
underlying services revenue £m 431 430 0
underlying profit before financing £m 10 48 380
energy – key financial data
2013 2014 
order book £m 1226 –
underlying revenue £m 871 724
underlying oe revenue £m 329 302
underlying service revenue £m 542 422
underlying profit before financing £m 64 3
energy business 
performance review
on 1 december we concluded the sale of 
our energy gas turbines and compressor 
business to siemens for a £785 million cash 
consideration and a further £200 million  
for a 25year licensing agreement 
41
strategic report in 2014 we launched the trusted to deliver 
excellence awards over 500 submissions were 
received each of which demonstrates the talent 
innovation commitment and ambition of 
rollsroyce men and women 
the achievements of all the entries that resulted 
in the final award winners showcased here prove 
what’s possible when we put ourselves in 
customers’ shoes
the engagement of our  
people is essential to the  
success of our strategy  
celebrating success  
award winners’ stories 
simple touch screen to help 
marine customers
marine 
ålesund norway 
on the bridge of a marine customer’s ship 
the team from ålesund saw the array of 
different panels uncoordinated operating 
systems and audible alerts that face our 
customers every day they saw firsthand 
what could be a source of frustration 
fatigue and a trigger for human error the 
team redesigned an overlay to the operating 
system this coordinated both functionally 
and visually the range of essential controls 
via a simplified touch screen to provide  
a unified bridge design
 
100 rightfirsttime disc 
production
supply chain 
washington uk 
the £100 million investment in the high 
performance disc manufacturing facility  
in washington set the record for the fastest 
new rollsroyce facility build in the group’s 
history a combination of stateoftheart 
equipment training and upskilling 
programmes has established a culture of 
continuous improvement this has resulted 
in 100 rightfirsttime production and it 
means that the discs which are integral to 
gas turbine engines can be delivered in half 
the time 
strategic report
rollsroyce holdings plc 42
our people 
the delighted rightfirsttime team from washington uk
image our advanced new unified bridge 
design for an offshore support vessel
annual report 2014  we need to work with 
people who make the whole 
production process smarter and 
more cost effective people like 
these award winners” 
nicole piasecki vp and general manager 
propulsion systems division of boeing 
commercial airplanes presented the 
awards to the winners
saving customers months  
of time in commissioning
nuclear
derby uk 
the uk team that supports the build of the 
astute class of nuclear submarines has cut 
the time and cost of delivery dramatically 
the complex pipework and valve systems 
require a flushing process that used to take  
a total of 190 days to complete following 
onsite visits our team saw the opportunity 
to collaborate with our partners to redesign 
the process the initial time required for 
most flush paths was reduced from 60 
hours to just one this will save the 
customer four months of commissioning 
time per submarine it means delivery of the 
same highquality submarines quicker and 
at a lower cost to the uk government one  
of our most important customers
challenging conventional 
thinking
engineering and technology
uk and germany 
the engineering and technology team 
discovered that by challenging traditional 
thinking about how air flows through a 
compressor they could measurably improve 
fuel efficiency they started with numerical 
flow simulations and then worked with 
teams across the globe to decrease air 
leakage and improve performance for our 
customers the result means less energy lost 
and improved longterm fuel efficiency for 
their engines the technology has already 
been deployed in the trent xwb engine and 
will be followed by testing on boeing 787 
and a3501000 aircraft 
standing in our customers’ 
shoes
civil small  medium engines
montreal canada 
every quarter the montreal team rolls out  
a red carpet on the factory floor employees 
from across the business stand up in front of 
their colleagues roleplaying the customers’ 
view of what we deliver to them employees 
audition to tell the stories behind the order 
forms and engine part serial numbers others 
volunteer to follow customers’ orders through 
the manufacturing process – from order to 
shipment this innovative approach is 
spurring new highs in employee engagement 
creating a deeper understanding of what our 
customers need and has increased customer 
satisfaction by almost 10 
improved turbine blade 
quality at less cost 
supply chain 
rotherham uk 
a new standard has been achieved in the 
highperformance turbine blade industry  
at the advanced blade casting facility in 
rotherham lead times and scrap rates are 
ontrack to be halved the team integrated 
sharpened and automated critical stages in 
the manufacturing process and in so doing 
improved the production precision of our 
complex single crystal turbine blades for 
our customers it means a perfect blade 
delivered more efficiently more quickly and 
at a dramatically reduced production cost
monitoring thrusters at sea 
to plan maintenance
engineering and technology
uk and finland 
azimuth thrusters give marine and offshore 
vessels superior manoeuvrability our ability 
to assess the health of these thrusters at sea 
saves our customers time and money by 
preventing unscheduled and unnecessary 
maintenance until now technology hasn’t 
been able to monitor thrusters in small and 
mediumsized ships – which represent 80 
of the marine market 
working in collaboration our strategic 
research centre marine services azimuth 
thruster team and the university of 
sheffield’s technology centre came up with 
the thruster wireless link the new 
technology enables us to read the vital signs 
of all our operating thrusters on all sizes of 
vessels and platforms it also opens a new 
lucrative market for our services for 
customers it means the ability to plan 
maintenance three to six months ahead  
of time and avoid costly propulsion  
failures at sea
 
the winners from montreal get the red carpet treatment 
themselves as they pick up their award
43
strategic report sustainability
rollsroyce holdings plc annual report 2014 44
strategic report
our strategy focuses on customer innovation and profitable 
growth to ensure a sustainable business 
our approach
sustainability is inherent to our 
strategy for rollsroyce that means 
driving profitable growth whilst 
achieving a positive economic  
social and environmental impact  
better power 
helping our customers do more  
using less
we use our engineering expertise to  
develop and deliver integrated power 
systems for our customers helping them  
to do more using less our commitment  
is to continuously improve the 
environmental performance of our  
products and services 
improving environmental 
performance
our environmental strategy reflects the 
main focus of our investment and effort 
concentrating on three areas supporting 
our customers by further reducing the 
environmental impact of our products and 
services developing new technology for 
future lowemission products and 
maintaining our drive to reduce the 
environmental impact of our business 
activities
product safety
our products are often deployed in mission 
critical environments we are committed  
to delivering products and services that 
achieve the highest standards of product 
safety we have a consistent approach to 
safety across the group and systematically 
pursue proactive opportunities for 
improvement more details can be found in 
the safety and ethics committee report on 
page 66
 
better future
committed to innovation powering 
better cleaner economic growth
this year we invested over £12 billion  
in gross rd as a result of engineering 
expertise and our strong tradition of 
innovation many of our products are 
currently marketleaders in terms of 
environmental performance innovation  
is embedded in all our products and services 
and is key to our competitive edge 
our people
the group employed a total of 54100 
people in 2014 we know that our future 
depends on the skills knowledge and 
passion of all of our people and work to 
create an environment where all employees 
can reach their full potential
we encourage diversity engagement  
and development we give full and fair 
consideration to all employment 
applications from people with disabilities 
and support disabled employees helping 
them to make the best use of their skills  
and potential 
a diverse workforce will help ensure our 
continued success as a global business and 
contribute towards a better future more 
information on our approach to diversity 
and gender distribution can be found in the 
nominations and governance committee 
report on page 65 
average number of employees by region 2013 2014
uk 24800 24500
usa 8500 7900
canada 1600 1500
germany 10500 10500
nordics 4100 4000
rest of world 5700 5700
average number of employees by business unit
civil aerospace 23400 23900
defence aerospace 7900 7000
marine 6900 6400
power systems 10700 10700
nuclear 3900 3900
energy 2400 2200
total 55200 54100
 headcount data is calculated in terms of average full time 
employees ftes for 2014 therefore this includes ftes 
associated with our energy gas turbines and compressor 
business disposed of in december 2014 the transfer of this 
business unit has had minimal impact on the average 
headcount numbers for the year marine and nuclear data for 
2013 has been restated to reflect the transfer of our 
submarines business from marine to nuclear
employee involvement
we use a variety of channels to communicate 
with our employees including facetoface  
and online communications we encourage 
collaboration employee suggestions and 
feedback through these systems in addition 
we have mechanisms in place for employees  
to be able to raise concerns both formally  
and anonymously including through the 
rollsroyce ethics line 
we have established frameworks for managing 
employee trade union and representative 
participation including formal information 
and consultations our incentive schemes  
and allemployee share plans enable every 
employee to have the opportunity to share  
in our success
early career development programmes
we continue to attract large numbers of high 
quality graduates and apprentices and have 
wellestablished early career programmes in 
11 countries worldwide 
in 2014 we introduced nonengineering 
graduate and apprenticeship programmes in 
germany we continue to focus on expanding  45
strategic report
our offerings beyond the uk particularly  
in india and germany 
we have won a number of awards this year 
including targetjobs winner of ‘the most 
popular graduate recruiter – engineering 
design and manufacture’ in the uk for the 
fifth year running 
human rights
our human rights approach is aligned  
with our global code of conduct it draws 
together relevant internal controls that 
oversee the range of issues encompassed  
by human rights our policy sets out our 
commitment to respect the human rights  
of our employees through core labour 
standards this covers employee 
involvement diversity and equality pay  
and benefits working hours forced labour 
and child labour
we comply with the local laws of the 
countries where we operate in the event 
that our human rights policy imposes 
higher requirements than local law we 
adhere to that higher requirement we set 
equivalent standards for our supply chain 
through our global supplier code of 
conduct this is part of our broader aim to 
align the standards of our suppliers to those 
of the group 
employee wellbeing
we work to enhance the personal wellbeing 
of our people to help them reach their full 
potential we are committed to empowering 
and enabling employees to lead a healthy 
lifestyle at work 
we launched new wellbeing initiatives across 
our global locations this year these include 
physiotherapy and employee assistance 
programmes in the uk employee sports  
days in china and germany and a wellbeing 
month across our us facilities over 4000 
employees worldwide participated in the 
global corporate challenge amassing a 
combined total of over five billion steps
communities
our community investment and education 
outreach programmes support our group 
strategy we recognise that talented 
engineers are the key to our future and work 
actively to increase interest and encourage 
diversity amongst those taking science 
technology engineering and mathematics 
stem subjects 
global partnerships
we engage in dialogue and partnerships 
with governments and industry bodies 
aligned to our business needs this year we 
have worked with the uk government on the 
implementation of the aerospace growth 
partnership in the eu we have focused on 
preventing unintended consequences of the 
inclusion of aviation in the european union 
emissions trading scheme in north america 
we continue to engage with a range of 
political stakeholders on issues including 
defence appropriations aviation policy 
federal aviation administration approval  
of our products and trade proposals 
our joint venture in india has now reached 
full production and exports to our other 
locations around the world through our 
subcontractors tcs and quest we have  
over 1000 engineers serving the group’s 
needs globally in china we are present in 
more than 30 locations including joint 
ventures our manufacturing and services 
centres in singapore are the heart of a multi
business and multifunction regional hub 
where our first major customer service 
centre opened in early 2015  
better business
investing in technology people  
and ideas to improve all aspects  
of our performance and to drive 
profitable growth
ethics
high ethical standards supported by good 
governance are fundamental to how we  
run our business we have a strong focus on 
ethics that helps ensure we win right every 
time this year our global code of conduct 
has been ranked by the red flag group as 
third among those within the ftse 100 
companies that were assessed 
rollsroyce does not make any corporate 
contributions or donations to political 
parties or causes as outlined in our global 
code of conduct 
more information on our approach to ethics 
can be found in the safety and ethics 
committee report on page 68 
health safety and environment
we regard the health and safety of our 
employees at work as paramount it is therefore 
with particular regret that we report the death 
of four employees in a single drowning incident 
which occurred in 2014 this tragic incident 
took place outside work whilst deployed at a 
customer location this incident is not reported 
in our annual data because it occurred outside 
working hours we have sought to learn from 
this incident in terms of managing remote 
fieldservice activities 
we continue to monitor safety performance  
in the workplace and are continuing with the 
process of integrating our power systems 
business into our hse management system 
at present power systems does not collect  
its hse data in a manner consistent with  
the group and therefore this data has  
been excluded from our 2013 and 2014  
hse figures 
in 2014 our total reportable injury tri rate 
fell by 16 to 037 tris per 100 employees 
compared to 044 in 2013 in the uk we were 
fined £200000 and £176000 in costs for a 
source radiography event that occurred in 
2011 we improve the performance of our 
operations by reducing energy greenhouse 
gas emissions and waste we support our 
external suppliers to do the same 
  the tri rate excludes power systems and has been adjusted 
to reflect the disposal of our energy gas turbines and 
compressor business in december 2014 entities that were 
part of the energy business that were not part of the disposal 
have been included see note at the bottom of page 46
accelerating progress
our goal is to be recognised as a leading 
sustainable business to achieve this we have 
established a dashboard of higher stretching 
targets showing progress towards improved 
sustainability performance
these targets are baselined on our 2014 
performance data with the exception  
of the acare flightpath 2050 goals 
our 2014 sustainability performance and 
targets are detailed overleaf better power better future better business
customer innovation profit able growth 
sustainability is inherent to our strategy t o be recognised as a leading sustainable business we 
will deliver better power for our customers use innovation to secure a better future and 
develop a better business ready to meet the opportunities ahead
 regulatory ghg emissions data detailed on page 164 
  limited assurance engagement undertaken by kmpg llp  using the assurance standards isae 3000 and isae 3410 over the ghg and tri data as highlighted more information detailed on page 164
  we are in the process of integrating our power systems business into our hse management system energy ghg tri and occupational illness data from power systems is excluded for 2014 the 
figures presented have been adjusted to reflect the disposal of our energy gas turbine and compressor business in december 2014 entities that were part of the energy business that were not part  
of the disposal have been included 
in the air
our new trent 7000 engine will deliver a 
10 improvement in specific fuel 
consumption and halve the noise energy 
output compared to the current engine on the 
a330 announced this year our advance and 
ultrafan next generation designs will offer at least 
2025 better fuel burn and co
2
 emissions than 
first generation trent engines 
2014 performance
at sea
our innovative ship design and 
propulsion systems and pioneering use 
of new cleaner fuel solutions are reducing 
emissions for our customers our environship 
design reduces co 2 by up to 40 compared to 
conventional diesel powered vessels and received 
the heyerdahl award this year 
on land 
our mtu technology installed on 
deutsche bahn’s diesel coradia lint 54  
and 81 type trains reduces particulate 
emissions by 90 and contributes to reducing  
fuel consumption and co 2 emissions our nuclear 
technology is installed in over 200 reactors across   
20 countries worldwide making a significant 
contribution to lowcarbon electricity generation 
supporting a global network of  
31 university technology  
centres engaging over  
700 academics  
in fundamental research into 
cutting edge technologies
rollsroyce has been listed in the dow jones 
sustainability index for the 13th consecutive year 
we achieved an overall score of 66 well above the 
average of 49 in the aerospace and defense sector
we have improved our cdp score to 89 this and  
our maintained performance band rating ‘b’ 
demonstrates our commitment to continually 
improving our environmental performance
over  
1

000 employee  
stem ambassadors globally
invested 
£4 million
in energy efficiency improvement projects 
7900 customers supported with 
our product learning solutions
supported suppliers to complete 
2500 individual courses
hosted almost 
14000 visitors at our 
customer training centres
40000 employees directly 
accessed our learning system completing 
250000 individual courses
a global code of conduct  
issued to all employees in  
21 different languages
recruited  
354 graduates  
and 357 apprentices
in 2014 we invested  
£12 billion in gross rd 
and filed for 600 patents
our health and safety performance 
continues to improve with a 
45 reduction  
in tri rate since 2010
£106 million invested in 
supporting communities  
a 31 increase since 2013
565 ktco 2 e absolute total 
ghg emissions from our operations
reduced yearonyear energy consumption 
normalised by revenue by  
16 since 2010
total reportable 
injury tri rate of  
037  
per 100 employees
occupational illness 
occurrence rate of  
005  
per 100 employees
46 annual report 2014 rollsroyce holdings plc
strategic report zero waste 
to landfill 
by 2020
all suppliers aligned to our  
own ambitions
better power better future better business
reach  
6 million people  
through the rollsroyce stem  
education programmes  
and activities by 2020
ensure our  
sustainable employee  
engagement index  
is greater or equal to  
the global high performance  
norm by 2020 
customer innovation profit able growth 
reduce total 
reportable injury 
tri rate to 03 per 
100 employees by 
2020 to achieve first 
quartile performance
reduce total solid  
and liquid waste by
 
25
normalised by  
revenue by 2020
our goal is to be recognised as a leading sustainable business we have established a dashboard 
of higher stretching targets to accelerate progress 
reduce greenhouse gas 
emissions by  
50  
absolute  
by 2025
this chart shows the improved efficiency levels 
of each generation of trent engine since the 
trent 700 was introduced in 1995 and our 
latest large civil engine the trent xwb
the trent xwb is the most efficient turbofan 
aero engine flying today
acare flightpath 2050 goals
the advisory council for aviation research  
and innovation in europe acare has set 
challenging goals for aviation to meet by 2050 
these include reducing aircraft co 2 emissions  
by 75 per passenger kilometre reducing noise 
by 65 and reducing oxides of nitrogen nox  
by 90 all relative to a typical new aircraft 
produced in 2000 
targets 
all suppliers agree 
adherence to the revised 
global supplier code of 
conduct  
by 2016
strategic suppliers 
supported in annual 
carbon disclosure 
project submissions  
by 2016
strategic supplier 
adherence to the revised 
code will be monitored 
by 2016
strategic suppliers 
supported to reduce 
their energy and waste 
by 2016
 provided by towers watson 
  excluding hazardous waste incineration 
with energy recovery only 
reduce energy use 
by 30  
normalised by revenue by 2020 
all employees to complete global 
code of conduct certification and 
mandatory ethics training by 2020
discover more online
wwwrollsroycecomsustainability
trent 800
trent 700
trent 500
trent 900
trent 1000
trent xwb
trent family
acare ightpath 2050 target
 co 2 or fuel burn
2000
30
25
20
15
10
5
0
2010 2020 2030 2040 2050
entry into service
all sites to achieve  
rollsroyce employee  
health and wellbeing  
livewell accreditation  
by 2020
47
strategic report key performance indicators
customer 
order book
3
5 excluding 
energy
why we measure it 
the order book provides an indicator of future business we 
measure it at constant exchange rates and list prices and include 
both firm and announced orders in civil aerospace it is common 
for a customer to take options for future orders in addition to firm 
orders placed such options are excluded from the order book in 
defence aerospace longterm programmes are often ordered for 
only one year at a time in such circumstances even though there 
may be no alternative engine choice available to the customer  
only the contracted business is included in the order book 
conservatively we only include the first seven years’ revenue  
of longterm aftermarket contracts
how we have 
performed 
the order book grew in all 
businesses except marine 
and nuclear
the disposal of the energy 
business in 2014 reduced  
the order book by £09bn
£bn
592
622
601
716
2010
737
2011 2012 2013 2014
order intake
28
order intake is a measure of new business secured during the  
year and represents new firm orders net of the movement in the 
announced order book between the start and end of the period  
any orders which were recorded in previous periods and which  
are subsequently cancelled reducing the order book are included as  
a reduction to intake we measure order intake at constant exchange 
rates and list prices and consistent with the order book policy of 
recording the first seven years’ revenue of longterm aftermarket 
contracts include the addition of the following year of revenue on 
longterm aftermarket contracts
the reduction mainly reflects 
lower order intake in civil 
aerospace from a high in 
2013 and includes the 
cancellation of emirates’ 
a350 xwb order 
defence aerospace order 
intake increased by 55
£bn
123
163 161
269
2010
194
2011 2012 2013 2014
underlying 
revenue
6
3 excluding fx
monitoring of revenues provides a measure of business growth 
underlying revenue is used as it reflects the impact of our  
fx hedging policy by valuing foreign currency revenue at  
the actual exchange rates achieved as a result of settling fx 
contracts this provides a clearer measure of the yearonyear 
trend
the reduction reflects  
an 8 fall in oe revenue  
and a 3 decline in  
services revenue
£m
10866
11277
12209
15505
2010
14588
2011 2012 2013 2014
page 23  
strategy
pages 24 and 25  
business model 
pages 44 to 47  
sustainability
we continue to build strong foundations for future growth  
in challenging economic conditions
financial performance indicators are shown below the key objectives of the board and its committees are 
described on pages 59 to 75 nonfinancial performance indicators are shown in the sustainability section  
on pages 44 to 47
rollsroyce holdings plc annual report 2014 48
strategic report innovation 
net rd 
expenditure  
as a proportion 
of underlying 
revenue
58
why we measure it 
this measure reflects the need to generate current returns  
as well as to invest for the future we measure rd as the 
selffunded expenditure before both amounts capitalised in  
the year and amortisation of previouslycapitalised balances  
we expect to spend approximately 5 of underlying revenues  
on rd although this proportion will fluctuate depending on 
the stage of development of current programmes we expect  
this proportion will reduce modestly over the medium term 
how we have performed 
the increase reflects 
increased investment due  
to the phasing of major  
new programmes
2010 2011 2012 2013 2014

47 46 47
48
58
capital 
expenditure  
as a proportion 
of underlying 
revenue
46
to deliver on its commitments to customers the group invests 
significant amounts in its infrastructure all proposed 
investments are subject to rigorous review to ensure that they 
are consistent with forecast activity and will provide value for 
money we measure annual capital expenditure as the cost of 
property plant and equipment acquired during the period and 
over the medium term expect a proportion of around 4
the level of expenditure 
reflects the ongoing 
investment in facilities  
and tooling as the group 
prepares for increased 
production volumes

33
41
40
44
46
2010 2011 2012 2013 2014
profitable growth 
underlying 
profit before 
financing
8
5 excluding fx
why we measure it 
we measure underlying profit before financing on a basis that 
shows the economic substance of the group’s hedging strategies 
in respect of the transactional exchange rate and commodity 
price movements in particular a revenues and costs 
denominated in us dollars and euros are presented on the basis 
of the exchange rates achieved during the year b similar 
adjustments are made in respect of commodity derivatives and 
c consequential adjustments are made to reflect the impact  
of exchange rates on trading assets and liabilities and longterm 
contracts on a consistent basis
how we have performed 
the reduction reflects  
fx changes restructuring 
costs a oneoff product 
rectification charge and 
higher rd partially offset 
by benefits on totalcare 
contracts and lower  
bonus costs 
2010 2011 2012 2013 2014
£m
1010
1206
1495
1831
1678
average  
cashdebt
£38m
we measure average cash based on the weekly balance of net 
fundsdebt these balances are reported at prevailing exchange 
rates and in recent periods yearonyear movements in average 
cash balances reflect the significant acquisitions and disposals 
which have taken place most notably rrps in 2011 iae 
restructuring in 2012 the purchase of the remaining 50 of rrps 
and the disposal of our energy gas turbines and compressor 
business in 2014 the impact on average cash balances will 
depend on when these transactions took place during the year
the reduction reflects the 
impact of the purchase of  
the remaining 50 of power 
systems in august 
the sale of the energy 
business in december  
had a minimal impact
2010 2011 2012 2013 2014
£m
960
320
145
350
38
free cash flow
£254m
in a business requiring significant investment we monitor cash 
flow to ensure that profitability is converted into cash generation 
both for future investment and as a return to shareholders  
we measure free cash flow as the movement in net fundsdebt 
during the year before movements arising from payments  
to shareholders acquisitions and disposals and fx 
the reduction mainly reflects 
lower profits and movements 
in customer deposits
2010 2011 2012 2013 2014
£m
714
581
781
254
548
during 2015 we intend to reconsider the dashboard of financial and nonfinancial kpis  
against which we believe the group should be measured
49
strategic report principal risks
managing our risks to deliver better power for a changing world
rollsroyce benefits from operating a risk 
management framework within a risk
conscious organisation risk management  
is built into our daytoday activities and 
forms an integral part of how we work from 
our engineering design through to engine 
production servicing and how we run our 
operations risk management is a key 
enabler for delivering our brand promise 
‘trusted to deliver excellence’ 
given the rapid growth of the business over 
the past few years and the changing risk 
environment that we work in we have been 
reviewing how far the risk management 
framework continues to meet our needs 
across the group this work is now largely 
complete and we will be rolling out some 
improvements across the organisation to 
help ensure greater consistency across the 
different parts of our operations part of this 
review has looked at risk governance and 
how the board assesses our principal risks 
and satisfies itself that these are being 
managed appropriately 
risk governance
the review of our risk management 
framework has been conducted alongside 
the governance review described on page 
56 the board has decided that from january 
2015 the principal risks will be reviewed  
by the board or the most appropriate board 
committees to make sure that there is 
sufficient focus and independent oversight 
on the risks during the year the relevant 
committees will carry out ‘deep dives’ to 
review their allocated risks in detail and then 
report to the board this will ensure that we 
are in a good position to assess how far 
controls and actions are effective 
the executive leadership team elt assists 
the board in determining the nature and 
extent of the principal risks it is willing to 
take in achieving its strategic objectives 
during 2014 as part of the full and halfyear 
results process the elt reviewed key risks 
which had been reported by the divisions 
and functions these were crosschecked 
with the risks that the elt had identified 
from its own assessments from which  
it developed a list of principal risks 
when the elt reviews the principal risks  
it takes into account changes in external 
strategic factors such as the competitive 
environment technology cyber security  
and macroeconomic developments as well 
as potential operational financial and 
compliance risks changes in our risk profile 
are highlighted to the board the board  
can regularly review and challenge whether 
the group’s principal risks are the right ones 
to focus on and have an opportunity to 
discuss with senior management how they 
are being managed the board is very 
conscious of the need to both keep the list  
of principal risks under active review and  
to consider potential risks as an explicit part 
of its discussions
our risk management activities
the board is responsible for the group’s 
system of internal control and for 
maintaining and reviewing its effectiveness 
from a financial operational and compliance 
perspective this system of internal control 
is designed to identify and manage rather 
than eliminate the risk of failure to achieve 
business objectives and to provide reasonable 
but not absolute assurance against material 
misstatement or loss our risk management 
process is a key element of the group’s internal 
control system and will develop in line with 
our activities and in response to the risks  
and uncertainties that arise
risk management is implemented using a 
groupwide framework and software tool  
and a network of trained experts 
divisions and their business units and 
functions are accountable for identifying  
and managing risk in line with group 
requirements and they formally review risks  
at least twice yearly business continuity plans 
are put in place by the businesses to mitigate 
continuity risks 
risk thresholds are set at each level across the 
group and any risks identified that meet the 
agreed threshold are captured in the group 
risk software tool and escalated to group  
level as part of a well structured reporting  
and review system
this framework benefits from overall 
coordination by the group’s enterprise risk 
team led by the director of risk which is 
responsible for disseminating risk policy and 
processes to help ensure full coverage and 
efficiency we are currently conducting a risk 
control and assurance mapping exercise to 
give the board and committees that have 
oversight responsibility a clearer picture of 
how the internal control and risk management 
framework is working in practice 
joint ventures constitute an increasingly large 
part of the group’s activities responsibility for 
internal control procedures in joint ventures 
lies with the managers of those operations 
we seek to exert influence over such joint 
ventures through board representation 
management and internal audit regularly 
review the activities of these joint ventures 
and the director of internal audit and the 
audit committee have been taking a close  
look at audit coverage in this area
page 62  
directors’ report
pages 71 and 72  
audit committee
our risk framework ensures that 
risks are identified managed and 
communicated at every level of 
the group 
key risks are subject to review and 
challenge by the elt and are used 
to assist the board in determining 
our principal risks
the
board
elt  board  
committees
divisionfunctions
business units
programmes
rollsroyce holdings plc annual report 2014 50
strategic report the following table describes the principal risks facing the group notwithstanding that there are other risks that may 
occur and may impact the achievement of the group’s objectives 
risk or uncertainty and potential impact how we manage it
product failure
product not meeting safety expectations or 
causing significant impact to customers or the 
environment through failure in quality control
• operating a safety first culture
• applying our engineering design and validation process from initial design 
through production and into service
• the safety and ethics committee reviewing the scope and effectiveness  
of the group’s product safety policies to ensure that they operate to the  
highest industry standards see safety and ethics committee on page 66
• operating a safety management system sms governed by the product safety 
review board and subject to continual improvement based on experience and 
industry best practice product safety training is an integral part of our sms
• improving our supply chain quality
• crisis management team chaired by the director – engineering and technology 
or general counsel as appropriate
this principal risk is subject to review by the safety and ethics committee 
business continuity
breakdown of external supply chain or internal 
facilities that could be caused by destruction of  
key facilities natural disaster regional conflict 
financial insolvency of a critical supplier or scarcity 
of materials which would reduce the ability to 
meet customer commitments win future business 
or achieve operational results
•  continuing investment in adequate capacity and modern equipment and 
facilities see aerospace business review on page 33
• identifying and assessing points of weakness in our internal and external 
supply chain our it systems and our people skills
• selecting and developing stronger suppliers 
• developing dual sources or dual capability
• developing and testing incident management and business continuity plans
• crisis management team chaired by director – engineering and technology  
or general counsel as appropriate
• customer excellence centres providing improved response to supply  
chain disruption
this principal risk is subject to review by the audit committee 
strategic priorities customer profitable growth innovation
the board is very aware that the 
effectiveness of risk management is highly 
dependent on behaviours as a good process 
does not automatically lead to a good 
outcome our ethics and compliance 
improvement programme aimed at 
securing compliance with our ethical 
standards will help the launch of the new 
global code of conduct is reinforcing the 
values and behaviours required which in 
turn will strengthen our risk culture 
principal risks
during the year the elt and board focused 
on the principal risks and the actions being 
taken to manage them this involved 
discussing changes to the risk register 
considering key risk thresholds and agreeing 
changes to limits reviewing the risk 
indicators for principal risks and hearing 
from management how risks that exceed 
the revised thresholds will be managed
51
strategic report principal risks
continued
risk or uncertainty and potential impact how we manage it
competitor action
the presence of large financially strong 
competitors in the majority of our markets means 
that the group is susceptible to significant price 
pressure for original equipment or services even 
where our markets are mature or the competitors 
are few our main competitors have access to 
significant government funding programmes  
as well as the ability to invest heavily in technology 
and industrial capability
•  accessing and developing key technologies and service offerings which 
differentiate us competitively see innovation and technology on page 21
• focusing on being responsive to our customers and improving the quality 
delivery and reliability of our products and services
• partnering with others effectively
• driving down cost and improving margins see chief executive’s review  
on page 17 and chief financial officer’s review on pages 26 and 27
• protecting credit lines 
• investing in innovation manufacturing and production and continuing 
governance of technology programmes
• understanding our competitors
this principal risk is subject to review by the board 
political risk
geopolitical factors that lead to an unfavourable 
business climate and significant tensions between 
major trading parties or blocs which could impact 
the group’s operations for example explicit trade 
protectionism differing tax or regulatory regimes 
potential for conflict or broader political issues 
• where possible locating our domestic facilities and supply chain in  
countries with a low level of political risk andor ensuring that we  
maintain dual capability
• diversifying global operations to avoid excessive concentration of risks  
in particular areas
• the international network of rollsroyce and its business units proactively 
monitoring local situations
• maintaining a balanced business portfolio with high barriers to entry and  
a diverse customer base see chief executive’s review on pages 15 and 16 and  
business model on pages 24 and 25
• proactively influencing regulation where it affects us see sustainability  
on page 45
this principal risk is subject to review by the board
major programme delivery
failure to deliver a major programme on time 
within budget to specification or technical 
performance falling significantly short of  
customer expectations or not delivering the 
planned business benefits would 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
•  major programmes are subject to board approval see additional financial 
information on page 160
• reviewing major programmes at levels and frequencies appropriate to their 
performance against key financial and nonfinancial deliverables and potential 
risks throughout the programme’s life cycle see additional financial 
information on page 160
• conducting technical audits at predefined points and performed by a team 
that is independent from the programme
• requiring programmes to address the actions arising from reviews and audits 
and monitoring and controlling progress through to closure
• applying knowledge management principles to provide benefit to current  
and future programmes
this principal risk is subject to review by the board
strategic priorities customer profitable growth innovation
rollsroyce holdings plc annual report 2014 52
strategic report the strategic report was approved  
by the board on 12 february 2015  
and signed on its behalf by
pamela coles
company secretary
risk or uncertainty and potential impact how we manage it
compliance
noncompliance by the group with legislation  
or other regulatory requirements in the heavily 
regulated environment in which it operates  
for example export controls use of controlled 
chemicals and substances and antibribery and 
corruption legislation compromising the ability  
to conduct business in certain jurisdictions and 
exposing the group to potential reputational 
damage financial penalties debarment from 
government contracts for a period of time andor 
suspension of export privileges or export credit 
financing any of which could have a material 
adverse effect
• taking an uncompromising approach to compliance
• operating an extensive compliance programme this programme and the 
global code of conduct are disseminated throughout the group and are 
updated and reinforced from timetotime to ensure their continued relevance 
and to ensure that they are complied with both in spirit and to the letter the 
global code of conduct and the group’s compliance programme are supported 
by appropriate training see safety and ethics committee on page 67
• a legal and compliance team is in place to manage our compliance programme 
and any ongoing regulatory investigations see safety and ethics committee  
on page 68
• lord gold has reviewed the group’s current compliance procedures and the 
group has continued to implement an improvement plan
• implementing a comprehensive reach compliance programme this includes 
establishing appropriate data systems and processes working with our 
suppliers customers and trade associations and conducting research on 
alternative materials 
this principal risk is subject to review by the safety and ethics committee
market shock
the group is exposed to a number of market risks 
some of which are of a macroeconomic nature  
for example oil price or foreign currency exchange 
rates and some which are more specific to the 
group such as liquidity and credit risks reduction 
in air travel or disruption to other customer 
operations significant extraneous market events 
could also materially damage the group’s 
competitiveness andor creditworthiness this 
would affect operational results or the outcomes  
of financial transactions
•  maintaining a strong balance sheet through healthy cash balances and  
a continuing low level of debt
• providing financial flexibility by maintaining high levels of liquidity and  
an investment grade ‘a’ credit rating see additional financial information  
on page 161
• sustaining a balanced portfolio through earning revenue both from the sale  
of original equipment and aftermarket services providing a broad product 
range and addressing diverse markets that have differing business cycles
• deciding where and what currencies to source in and where and how much 
credit risk is extended or taken the group has a number of treasury policies 
that are designed to hedge residual risks using financial derivatives foreign 
exchange interest rate and commodity price risk – see additional financial 
information on page 160 and note 17
this principal risk is subject to review by the audit committee
it vulnerability
breach of it security causing controlled or critical 
data to be lost made inaccessible corrupted or 
accessed by unauthorised users impacting the 
group’s operations or reputation
• establishing ‘defence in depth’ through deployment of multiple layers of 
software protection and processes including web gateways filtering firewalls 
intrusion and advanced persistent threat detectors and integrated reporting 
see audit committee report on pages 71 and 72
• running security and network operations centres 
• actively sharing it security information through industry government  
and security forums
this principal risk is subject to review by the audit committee
53
strategic report directors’ report
rollsroyce holdings plc annual report 2014 54
board of directors
1 ian davis chairman
 2
chairman of the nominations 
and governance committee
appointed to the board march 2013  
and as chairman may 2013
key areas of experience finance government  
and overseas experience
other current appointments
• johnson  johnson inc nonexecutive director
• bp plc nonexecutive director
• uk cabinet office board nonexecutive member 
• apax partners llp  senior adviser
previous relevant experience 
•  mckinsey  company 1979 – 2003 
•  chairman and worldwide managing  
director of mckinsey 2003 – 2010  
he served as a consultant at mckinsey to a range  
of global organisations across the private public  
and notforprofit sectors
2 john rishton chief executive
appointed to the board march 2007 and  
as chief executive march 2011
key areas of experience finance sales and 
marketing and overseas experience
other current appointments 
• unilever n v and unilever plc nonexecutive director
previous relevant experience 
•  ford motor company  held a variety of positions  
in the uk and europe 1979 – 1994
• british airways plc 1994 – 2001
•  british airways plc chief financial officer  
2001 – 2005
•  royal ahold cfo from 2006 – 2007 and ceo  
from 2007 – 2011
5 ruth cairnie nonexecutive director
 235
appointed to the board september 2014
key areas of experience international marketing 
and supply chain and overseas experience
other current appointments  
• associated british foods plc nonexecutive director 
•  keller group plc nonexecutive director rotterdam 
school of management member of advisory board
previous relevant experience  
•  royal dutch shell plc 1976 – 2014 executive vice 
president strategy  planning and other senior 
international roles including managing the global 
commercial fuels business
6 sir frank chapman nonexecutive director
 234
 
chairman of the safety and ethics committee
appointed to the board november 2011
key areas of experience engineering and industrial
other current appointments 
• golar lng limited chairman
previous relevant experience
•  appointments within bp p lc 1974 – 1978 and  
royal dutch shell plc 1978 – 1996 
•  bg group plc ceo 2000 – 2012  
he was knighted in 2011 for services to the  
oil  gas industries
7  warren east cbe
   
nonexecutive director
 125
chairman of the science and technology 
committee
appointed to the board january 2014
key areas of experience t echnology and engineering 
other current appointments 
• de la rue plc nonexecutive director
• dyson ltd nonexecutive director
•  bt group plc nonexecutive director
• micron t echnology inc nonexecutive director
previous relevant experience
• arm holdings plc chief executive 2001 – 2013
•  arm holdings plc various senior appointments  
1994 – 2001 
 he was awarded a cbe in 2014 for services to the 
technology industry
3 lewis booth cbe  
senior independent director 
125
chairman of the audit committee
appointed to the board may 2011
key areas of experience finance industrial  
and overseas experience
other current appointments 
• mondelez international inc director 
• gentherm inc director 
• university of liverpool in america inc director
previous relevant experience 
•  ford motor company  senior positions in europe 
asia africa and us 1978 – 2009
•  ford motor company  executive vice president  
and cfo 2008 – 2012 
he was awarded a cbe in 2012 for services to the 
uk automotive and manufacturing industries
4 dame helen alexander  
nonexecutive director
 234
 
chairman of the remuneration committee 
appointed to the board september 2007
key areas of experience media business  
and finance 
other current appointments  
• ubm plc chairman
• port of london authority  chairman
• esure group plc deputy chairman
• bain capital senior adviser
• edf’s uk advisory board member
• university of southampton chancellor
•  she is also involved with other notforprofit 
organisations in media the arts and education
previous relevant experience  
• economist group chief executive 1997 – 2008
•  economist intelligence unit managing director 
1993 – 1997
• bt group plc nonexecutive director 1998 – 2001
•  northern foods plc nonexecutive director  
1994 – 2002
• cbi president 2009 – 2011 
•  centrica plc nonexecutive director 2003 – 2011 
she was awarded a dbe in 2011 for services  
to business
1
11
2
12
3 4
9 10 directors’ report
55
8 lee hsien yang nonexecutive director
 24
appointed to the board january 2014
key areas of experience t elecommunications 
government engineering and finance
other current appointments 
• general atlantic llc special advisor
• civil aviation authority of singapore chairman
• general atlantic singapore fund pte ltd chairman
• the islamic bank of asia private limited chairman
•  the australian and new zealand banking group 
ltd director
•  lee kuan y ew school of public policy  member  
of the board of governors
• insead south east asia council president
•  singapore exchange limited director
previous relevant experience
•  singapore t elecommunications limited  
chief executive 1995 – 2007
•  fraser and neave limited chairman  
and nonexecutive director 2007 – 2013
 
9 john mcadam nonexecutive director
 234
 
appointed to the board february 2008
key areas of experience retail and industrial
other current appointments 
• united utilities group plc chairman
• rentokil initial plc chairman
• j sainsbury plc senior independent director
previous relevant experience
•  unilever plc senior positions within birds eye 
walls quest and unichema from 1974 –1998
• ici paints chairman and ceo 1998 – 2002
• ici plc chief executive 2003 – 2008
•  severn trent plc nonexecutive director  
2000 – 2005 
•  sara lee corporation nonexecutive director  
2008 – 2012
10 john neill cbe nonexecutive director
 12
 
appointed to the board november 2008
key areas of experience engineering industrial 
and finance
other current appointments 
•  unipart group of companies chairman  
and group chief executive
• atlantis resources limited chairman
•  business in the community  council  
and board member
•  society of motor manufacturers and trades  
vice president
• ben the automotive industry charity  vice president
• the institute of the motor industry  vice president
previous relevant experience 
• bank of england director 
• royal mail nonexecutive director
•  charter international plc nonexecutive director 
he was awarded a cbe in june 1994 for services 
to the motor industry
11 jasmin staiblin nonexecutive director
 25
appointed to the board may 2012
key areas of experience t echnology  engineering 
and overseas experience
other current appointments 
• alpiq holding ag ceo 
• georg fischer ag nonexecutive director  
•  federal institute of t echnology the eth domain 
board member
previous relevant experience
• abb switzerland ltd ceo until 2012
12 james guyette president and chief 
executive officer of rollsroyce north 
america inc 
appointed to the board january 1998
key areas of experience sales marketing  
and airline operations
other current appointments 
•  privatebancorp inc chairman
• pricelinecom lead independent director
previous relevant experience
•  united airlines executive vice president 
marketing and planning 1969 – 1997 
 
13 david smith chief financial officer 
appointed to the board november 2014
key areas of experience finance
other current appointments 
•  motability operations group plc  
nonexecutive director
• british motor industry heritage trust trustee
previous relevant experience
•  ford and jaguar land rover various senior 
positions spanning 25 years
• jaguar land rover ceo 2008 – 2010
• edwards chief financial officer 2010 – 2013
14 colin p smith cbe director – engineering  
and technology 
appointed to the board july 2005
key areas of experience engineering
other current appointments 
• council for science and t echnology member
previous relevant experience
•  rollsroyce plc 1974 to date he has held a variety 
of key positions including director – research and 
t echnology and director of engineering and 
t echnology – civil aerospace  
 in june 2012 he was awarded a cbe for services  
to uk engineering
15 pamela coles company secretary 
appointed company secretary in october 2014
key areas of experience corporate governance 
and company law
previous relevant experience
• centrica plc head of secretariat 2008 – 2014
•  held a variety of company secretary roles 
including rank group plc group company 
secretary and a member of the executive 
committee 
•  rac plc company secretary and head of legal 
fellow of the institute of chartered secretaries  
and administrators since 1997
6 7 8
14 13 15
5
committee membership
1 audit committee
2  nominations and governance  
committee
3 remuneration committee
4 safety and ethics committee
5 science and technology committee 
 formed january 2015 directors’ report
rollsroyce holdings plc annual report 2014 56
chairman’s introduction
strong ethical standards and behaviours supported by good 
governance are fundamental to a healthy company this year  
we have focused on reviewing and amending our governance 
arrangements and structures as well as continuing to reinforce  
the conduct and behaviours we expect wherever we operate
we are very conscious that our governance must meet the demands 
of our business our shareholders and other stakeholder groups 
changes in our operating and risk environment are constant arising 
from developments in technology regulation and our relative 
competitive position in shifting markets furthermore we need to 
remain alert to our shareholders’ points of view and ensure we are 
wellequipped to respond to their concerns
during the year the board considered the group’s overall 
governance framework including the work and composition of the 
board committees and the structure of reporting lines information 
flow and delegation of responsibilities we have also reviewed how 
we engage with shareholders and respond to their comments 
particularly around the forwardlooking information provided and 
setting out our strategy following this thorough review we agreed 
a number of changes which took effect from 1 january 2015 
we invest over £1 billion on rd every year investment in 
innovation and managing engineeringrelated risks are critical to 
our success and so we have established a science and technology 
committee under the chairmanship of warren east this committee 
will provide greater oversight of the development and 
implementation of our innovation strategy and provide assurance 
that we are concentrating our efforts in the right areas the 
committee will review the direction of the group’s research 
technology and development activities to ensure that significant 
science and technology trends are identified and incorporated  
into future plans 
we expanded the remit of the nominations committee to include 
the regular review of governance arrangements we strengthened 
our company secretarial team with the recent appointment of  
a highly experienced company secretary who will be overseeing the 
implementation and regularly reviewing the revised governance 
framework in particular i am looking forward to benefiting from 
the support she will provide to me as chairman and to the senior 
independent director 
in last year’s annual report i commented that the safety and ethics 
committees would be combined however as the governance 
review was underway it was decided to defer this until the review 
was completed these committees were combined with effect from 
1 january 2015 and have assumed responsibility for sustainability 
as well as their other responsibilities detailed on page 66 this gives 
greater focus of our vision to deliver better power for a changing 
world ethically safely and sustainably we see close linkages 
between ethical behaviour taking a responsible attitude towards 
safety and meeting our social and environmental obligations
the board governance structure is set out on page 59 and a full 
copy of the refreshed highlevel governance structure is available  
on the group’s website 
the structure of the group was changed in 2014 to bring greater 
organisational and management coherence to the work of our main 
two divisions aerospace and land  sea through this change we 
are aiming to encourage better coordination across our different 
activities secure benefits from greater integration and reinforce 
accountabilities each of the divisions is described in more detail  
on pages 32 to 41 as part of the ongoing work looking at 
governance across the group we will continue to review our 
processes and structures within the divisions and as we integrate 
power systems as mentioned in the audit committee report on 
page 69 we are further strengthening governance at a divisional  
level through our sector audit committees 
also as part of the ongoing review the board is considering  
how internal controls and the risk management framework are 
operating in practice as outlined on pages 50 62 and 71 we view 
this as fundamental to understanding and discussing the main 
challenges to the business both strategic and operational the 
executive leadership team elt will continue to review all principal 
and emerging risks as set out on pages 51 to 53 each identified 
principal risk will also be considered by the board who will allocate 
certain risks to the most appropriate board committee those 
 we benefit from a 
strong board that has the 
requisite skills to manage 
an international business” directors’ report
57
the elt is an executive forum at which the group’s most senior business 
and functional leaders review communicate and agree on issues and 
actions of groupwide significance its members are
john rishton
chief executive
chairs the elt
miles cowdry
director global corporate 
development
james guyette 
president and chief executive 
officer – rollsroyce north 
america inc
lawrie haynes
president – land  sea
harry holt
group operations strategy 
director
mary humiston
group hr director
colin smith
director – engineering 
and technology
david smith
chief financial officer
robert webb
general counsel
tony wood
president – aerospace
committees will then report back to the board with their views  
on how those risks are being managed and controlled
the audit committee will continue to review all principal risks and 
the overall internal controls and risk management framework as 
part of its yearend activities this will remain an area of focus in 
2015 especially as we consider our approach to the changes to the 
uk corporate governance code regarding the board’s responsibility 
to review at least annually the effectiveness of the group’s risk 
management and internal control systems
in september 2014 we commissioned independent audit a 
specialist board and governance consultancy to carry out an 
evaluation of the effectiveness of the board and its committees  
i was particularly pleased with its conclusion that the board was 
working off a firm base with a strong core of highly experienced 
and committed directors working well together as a team in an 
open and supportive atmosphere we identified a number of areas 
where we could do better and further details of the evaluation and 
its outcomes can be found on page 61 of this report 
we benefit from a strong board that has the requisite skills to 
manage an international business driven by manufacturing quality 
and innovation our nominations and governance committee 
regularly reviews the composition and balance of the board in terms 
of skills knowledge experience and diversity to ensure we have  
the right mix to manage the group this is particularly important  
as we work with the chief executive to ensure that at all levels of 
the executive and senior management team the right people are  
in place we recruited a highlyexperienced group hr director who 
will ensure that our longterm executive development and 
succession planning and more generally our resourcing and 
retention strategies are implemented successfully
i am confident that the board works well together and with the  
elt this gives us a strong platform based on trust and confidence 
on which to have rigorous discussions and hold executives 
accountable
during the year we appointed lewis booth as the senior 
independent director his strong capabilities and experience 
together with his contribution to the board over several years  
made him the right candidate for the role 
as i said in my review on page 13 i am delighted that david smith 
has joined the board as chief financial officer he has an 
exceptional track record as a financial leader and since joining 
rollsroyce has demonstrated determination discipline and 
intellectual rigour 
international advisory board iab
the iab formed in 2006 advises the board on political and economic 
developments around the world and alerts the company to possible 
longterm opportunities threats and risks its members are
lord powell of bayswater
chairman of the iab
former foreign affairs and 
defence adviser to prime  
ministers baroness thatcher  
and sir john major
vladimír dlouhý 
international advisor to goldman 
sachs for central and eastern 
europe european deputy chairman 
of the trilateral commission 
president czech chamber of 
commerce and a former member 
of the czech government 
sir rod eddington
chairman of jp morgan australia 
 new zealand and former chief 
executive of british airways plc
dr fan gang
professor at china’s academy  
of social sciences and director  
of national economic research 
institute china
mustafa koç
chairman of koç holding aş 
turkey 
dr pedro sampaio malan
chairman of itaú unibanco’s 
international advisory board  
and a member of the boards  
of edp – energias do brasil  
souza cruz brazil mills 
engenharia a director of thomson 
reuters founders share company 
and a member of the temasek 
international panel
akio mimura
senior advisor honorary chairman 
nippon steel  sumitomo 
metal corporation japan
lubna olayan
ceo and deputy chairperson  
of the olayan financing company 
saudi arabia
ratan tata
former chairman of tata sons 
limited india
ambassador robert b 
zoellick
chairman of goldman sachs 
international advisors senior 
fellow at the belfer center at 
harvard university former 
president of world bank group  
us trade representative and  
us deputy secretary of state
the executive leadership team elt
a copy of the governance framework is available at
wwwrollsroycecomaboutwhowearecorporategovernance  directors’ report
rollsroyce holdings plc annual report 2014 58
chairman’s introduction
continued
james guyette will be stepping down as a board member at the 
conclusion of the agm on 8 may 2015 and retiring from his role as 
president and chief executive officer of rollsroyce north america 
on 31 may 2015 john neill has also indicated that he will not  
put himself forward for reelection at the 2015 agm and will 
therefore leave the board having completed over six years  
as a nonexecutive director
i am delighted that irene dorner will be appointed as a non
executive director with effect from 27 july 2015 details of irene’s 
experience are included in my review on page 13
i am pleased that we have made demonstrable progress to increase 
the number of women on our board most recently ruth cairnie 
joined the board as a nonexecutive director with effect from  
1 september 2014 the process for ruth’s appointment is described 
on page 65 of the nominations and governance committee report 
women currently represent 7 of senior management and  
we will continue to focus on increasing this proportion over the 
coming years historically women have been underrepresented  
in the engineering sector in order to achieve our aspirations we 
need to increase diversity in all levels of the group not just the 
board and we are working on programmes to achieve this  
we will select future candidates based on their relevant skills 
experience and knowledge and in keeping with the business  
needs irrespective of gender
last year we began to rollout an ethics and compliance programme 
where all employees were asked to certify that they had read and 
understood the global code of conduct global code and would 
comply with it this was supported by a training course by the  
end of 2014 96 of employees had provided certification in respect 
of the global code and while we are satisfied with this level of 
certification we are looking to improve this figure
the group has continued to implement the recommendations 
made in lord gold’s interim report in 2013 and has developed  
an ethics and compliance improvement programme to deliver the 
recommendations lord gold has continued to work with us and 
reports regularly to the board further details of our activities in  
this area are included in the safety and ethics committee report  
on page 68 
overall i am pleased with the progress we are making on updating 
and upgrading our controls and governance we need to maintain 
our focus on risk management and compliance procedures we will 
review our governance framework annually to ensure that we are 
wellpositioned to provide effective oversight over a complex 
business and to give our shareholders a clear view of our 
performance and strategic direction
ian davis 
chairman directors’ report
59
corporate governance
uk corporate governance code
this report sets out how the company applied the principles of the 
uk corporate governance code 2012 the code and the extent to 
which the company complied with the provisions of the code 
during the year a copy of the code is available from the financial 
reporting council’s website wwwfrcorguk
the board considers that the company complied in all material 
respects with the code for the whole of the year to 31 december 
2014 the board has agreed that arrangements by which staff may 
raise concerns in confidence are considered and reviewed by the 
safety and ethics committee matters relating to financial 
reporting the integrity of financial management or fraud are also 
reported to the audit committee
the audit committee has considered the requirement to put the 
audit out to tender every ten years in line with the frc’s transitional 
arrangements the committee will do so during the tenure of the 
current lead partner which expires in 2017 more detail can be 
found in the audit committee report on page 73
the board
role and responsibilities 
the board believes that good corporate governance is not just  
a matter of compliance it should be contributing to the group’s 
performance by making sure we have a clear strategic direction 
manage our risks to the right level and keep the business under 
control a clearly defined framework of roles and responsibilities  
has been agreed and this has been fully reviewed during 2014
the powers of the directors are set out in the company’s articles  
of association the articles which are available on the group’s 
website the articles may be amended by special resolution in 
addition the directors have responsibilities and duties under 
legislation in particular the companies act 2006
the board has a schedule of matters reserved for its approval 
generally being those items which affect the shape and risk profile 
of the group as well as items such as the annual budget and 
performance targets the financial statements payments to 
shareholders major capital investments substantial changes  
to balance sheet management policy and the strategic plan the 
schedule of reserved matters was reviewed during the year as part 
of the governance review and is available on the group’s website
board meetings
the board holds regular scheduled meetings throughout the year  
in 2014 the board met 11 times of which nine meetings were 
scheduled and two were unscheduled supplementary meetings 
we are very conscious of the need to provide directors with the 
information they need to be effective we send out papers well in 
advance of meetings to help directors prepare we keep the content 
and structure of papers under review to help make sure that they 
communicate the main issues clearly this year’s board review has 
highlighted some changes that would help in maintaining the 
board’s focus on the main strategic issues so we will be looking to 
develop some aspects of the board papers during 2015 the review 
confirmed that the directors are satisfied with the fullness of the 
papers and management’s commitment to transparency but we 
recognise that more can be done to enhance the presentation of 
trends and key performance indicators 
directors are expected to attend all meetings of the board and the 
committees on which they sit and to devote sufficient time to the 
company’s affairs to enable them to fulfil their duties as directors  
if directors are unable to attend a meeting their comments on the 
board papers are discussed in advance with the chairman so that 
their contribution can be included in the wider board discussion 
details of attendance by directors at board meetings during 2014 
are set out in the table overleaf and attendance at committee 
meetings is set out within the reports on pages 64 66 69 and 74
remuneration 
committee
nominations and 
governance 
committee
chairman
safety and ethics 
committee
science and  
technology 
committee
audit committee 
the board
chief executive
executive leadership team
governance framework from january 2015 directors’ report
rollsroyce holdings plc annual report 2014 60
members attendance in 2014
ian davis chairman 99 
john rishton 99
dame helen alexander 79
lewis booth cbe 99
ruth cairnie appointed 1 september 2014 33
sir frank chapman 99
iain conn retired 1 may 2014 44
warren east cbe 99
james guyette 99
lee hsien yang 89
john mcadam 99
mark morris left 4 november 2014 77
john neill cbe 99
colin smith cbe 99
david smith appointed 4 november 2014 22
jasmin staiblin 99
board composition
the board comprises a nonexecutive chairman four executive 
directors and nine nonexecutive directors 
details of the board are set out on pages 54 and 55 details of the 
executive directors’ service contracts or letters of appointment in 
the case of nonexecutive directors are on page 80 details of their 
remuneration and share interests are set out in the directors’ 
remuneration report on pages 76 to 84
key roles
the roles of the chairman chief executive senior independent 
director and company secretary are set out in writing and have 
been agreed by the board 
the chairman
ian davis 
responsibilities
•  effective running of the board and its committees in accordance with  
the highest standards of corporate governance
• setting the board agenda
•  managing the board to ensure adequate time for discussion of all agenda 
items
• ensuring the board receives accurate timely and clear information
the chief executive
john rishton
responsibilities
• overseeing the daytoday operation of the company’s business
• developing and implementing the company’s strategy as approved  
by the board
• establishing and maintaining formal and appropriate delegations  
of authority
• maintaining a close working relationship with the chairman
the senior independent director
lewis booth cbe
responsibilities
• providing a sounding board for the chairman
• being available to major shareholders if they have concerns which have 
not been resolved through the normal channels of the chairman chief 
executive or other executive directors
• conducting an annual review of the performance of the chairman
the company secretary
pamela coles
all directors have access to the advice and services of the company 
secretary she acts as secretary to the board and its committees
responsibilities
•  ensuring compliance with board procedures and corporate governance
•  administering the process for directors to access external independent 
advice at the company’s expense
•  assisting the nominations and governance committee with plans for 
directors’ induction and ongoing training
• ensuring the board receives accurate timely and clear information
the guiding principles agreed by the board to govern the 
relationship between the chairman and the chief executive  
are contained within the governance framework available  
on the group’s website
independence of nonexecutive directors
the board conducts a rigorous review of the independence of the 
nonexecutive directors every year based on the criteria in the 
code this review was undertaken in november 2014 and the board 
concluded that all the nonexecutive directors remained 
independent in character and judgement
the code does not consider the test of independence to be 
appropriate to the chairman of a company however ian davis  
did meet the code’s independence criteria upon his appointment  
as chairman in may 2013 his other external commitments are 
described on page 54 
conflicts of interest
directors have a duty to avoid a situation in which they have or can 
have a direct or indirect interest which conflicts or possibly may 
conflict with the interests of the company unless that situational 
conflict has been authorised by the board the nominations 
committee reviewed and authorised all directors’ situational 
conflicts and has agreed that while directors are required to keep 
confidential all company information they shall not be required to 
share with the company confidential information received by them 
from a third party which is the subject of the situational conflict
corporate governance
continued directors’ report
61
appointments and reappointments
a formal rigorous and transparent process is followed during the 
selection and subsequent appointment of new directors each director 
stands for reappointment at each agm nonexecutive directors’ 
terms of office will be terminated without compensation if they fail  
to be reelected see page 91 for further information nonexecutive 
directors are appointed for an initial term of three years which  
may be extended with the agreement of the board although  
reappointment is not automatic a rigorous review is undertaken 
taking account of their performance and ability to contribute to the 
board in the light of the knowledge skills experience and diversity 
required when considering extending a term for a nonexecutive 
director beyond six years for 2014 this has consisted of facetoface 
discussions between the chairman and each director taking into 
account observations arising from the external board review
executive leadership team elt
the elt is the senior decisionmaking executive committee and is 
chaired by the chief executive its membership is shown on page 57  
during the year it developed detailed strategic options for the board  
to consider it also reviewed hse performance customer relations 
governance principal risks financial and operational performance as 
well as acquisitions and disposals during the year 
the elt assists the board in determining the nature and extent of the 
principal risks as described on page 50 
directors’ indemnities and insurance
in accordance with the articles and to the extent permitted by law  
the company has entered into separate deeds of indemnity with its 
directors which were in force during the financial year and remain in 
force at the date of this report the company also maintains directors’ 
and officers’ liability insurance cover for its directors and officers this 
cover also extends to directors of subsidiary companies
the work of the board 
at each scheduled meeting executive directors supplied reports  
on business and financial performance including the approval of 
financial statements and budgets the board also received regular 
updates on hse employee and legal issues and conducted a 
review of its governance arrangements the chairman of each of  
the board committees provided verbal reports on matters discussed 
by that committee since the previous board meeting
in september 2014 the board held its annual strategy meeting  
we focused on areas of particular importance and immediacy 
including our human resource strategy and our approach to 
strengthening our technology infrastructure and exploiting 
technological developments
in addition to its routine business matters considered by the board 
in 2014 included
• an update by lord gold on his interim report on ethical issues
• the proposed acquisition of wärtsilä
• discussions with frc over accounting for risk and revenue sharing 
arrangements rrsas
• our relationship and strategy with major airframe customers
• the sale of our energy gas turbines and compressor business  
to siemens 
• the £1 billion share buyback 
• a proposal to provide engines for the airbus a330neo
• feedback from investor days held during the year
• renewal of £275 billion euro medium term note programme
• the board external evaluation report and actions to be taken
• the revised corporate governance framework
• management succession issues and
• the integration of power systems
board evaluation
the board and its committees undertake an annual evaluation  
of their performance which is conducted by external consultants  
at least once every three years in 2014 the evaluation was 
conducted by independent audit who do not have any other 
connection to the company 
independent audit reviewed a year’s worth of board and committee 
papers and interviewed all directors and others who have 
significant interaction with the board and its committees including 
the external auditors and our remuneration advisors they also 
observed meetings of the board and committees the final report 
was discussed in detail by the board at a board dinner and with 
independent audit during a full discussion at a board meeting 
followup meetings with individual committee chairmen the 
company secretary and other senior management are underway
the review concluded that we benefit from a strong board which 
works well as a team of directors and enjoys a constructive and 
open relationship with management numerous positive points 
were noted and particular emphasis was put on the changes that 
have already been made to introduce new directors who bring  
fresh perspectives and different experience to the board and  
to encourage lively debate at meetings  directors’ report
rollsroyce holdings plc annual report 2014 62
there is always scope for improvement so we have taken into 
account independent audit’s recommendations and during  
2015 will be implementing a number of changes in emphasis  
which include
• reaffirming our strategy and business model for the  
land  sea division
• making sure our agendas are managed actively to reflect  
our priorities
• enhancing the board information to make sure it is more  
explicitly tied into our strategic priorities and objectives
• monitoring and guiding management’s programme for 
enhancing our management information
• ensuring that our investor communications are at the right level
• driving through the human resource and executive development 
programmes and
• making sure that our risk management and internal control 
frameworks are meeting our business and governance needs
the committees’ work was reviewed and this confirmed that all 
committees are providing effective support to the board areas for 
further development are noted in the individual committee reports
the evaluation of the chairman was carried out by lewis booth 
senior independent director who sought the individual views  
of each of the executive and nonexecutive directors particularly 
given that this was the chairman’s first full year in the role all the 
directors with the exception of the chairman then met in 
december 2014 to discuss the feedback and lewis booth 
subsequently met with the chairman to discuss the outcome 
the board unanimously agreed that the chairman’s performance 
had been very strong and that he had established himself in the  
role very effectively the chairman’s engagement across the entire 
spectrum of the group was notable and he has developed strong 
working relationships with both the nonexecutive and executive 
directors while being very effective in introducing new directors 
onto the board
board development
newly appointed directors participate in a structured induction 
programme facilitated by the company secretary and receive  
a comprehensive data pack providing detailed information  
on the group 
we recognised last year that our induction programme needed 
further development and we were pleased to note that the new 
directors informed the external reviewers that they were very 
satisfied with the support they received
this thorough introduction for new directors includes meetings 
with a range of management visits by board members to our 
operating sites are also an important part of both induction and 
continuing education to ensure that directors understand our 
business through direct experience of operating processes and 
discussions with employees at different levels throughout the 
business during the year some of the nonexecutive directors 
visited sites in the uk at derby and bristol ålesund in norway and 
our crosspointe facility in the us we are reviewing the programme 
for 2015 to make sure that all directors have opportunities to visit 
our operations
further training is available for all the directors including 
presentations by the executive team on particular aspects  
of the business in addition there is a procedure for directors  
to take independent professional advice at the company’s  
expense and every director has access to the company secretary 
financial reporting 
the group has a comprehensive budgeting system with an annual 
budget approved by the board revised forecasts for the year are 
reported at least quarterly actual results at both a business and 
group level are reported monthly against budget and variances are 
kept under scrutiny the new chief financial officer is undertaking 
an indepth review of our management reporting and budgeting 
processes to ensure that they fully provide what we need taking 
into account the size and shape of the group and the structure  
of our operations
financial managers are required to acknowledge in writing that 
their routine financial reporting is based on reliable data and that 
results are properly stated in accordance with group requirements 
in addition for annual reporting business presidents and finance 
directors are required to confirm that their business has complied 
with the group’s finance manual
internal control and risk management 
the group’s system of internal controls is designed to manage rather 
than eliminate the risk of failure to achieve business objectives for the 
group’s subsidiaries not including joint ventures and associates and 
can only provide reasonable and not absolute assurance against 
material misstatement or loss
the board will continue routinely to challenge management in order 
to ensure that the system of internal control is constantly improving 
and remains fit for purpose a major review of our risk management 
framework has been conducted over the past year and 
implementation is now underway the board with the advice  
of the audit committee has reviewed the effectiveness of the systems 
of internal control for the year under review and to the date of this 
report further information can be found in the audit committee 
report on page 71 
the board confirms that the group continues to be compliant  
with the turnbull guidance details of the group’s approach to risk 
management are set out on pages 50 to 53 we are working on our 
approach to meeting the new standards introduced in september 
2014 by the frc’s changes to the uk corporate governance code
corporate governance
continued directors’ report
63
relations with shareholders
investor relations
the board recognises and values the importance of maintaining  
an effective investor communication programme it is proactive  
in obtaining an understanding of shareholder views on a number  
of key matters affecting the group we recognise that at certain 
points over the past year our communications might have been more 
effective and so we are now undertaking a full review of the processes 
underpinning our investor communications and relations
a dedicated investor relations department that reports to the chief 
financial officer conducts an investor relations programme with 
institutional investors which includes formal events during the year 
as well as a regular series of onetoone and group meetings the 
purpose of these events is to highlight particular issues themes or 
announcements that the group believes warrant further explanation 
or clarification the events also provide opportunities for shareholders 
to meet members of the senior management team to discuss topics  
of interest examples of these events in 2014 were the full and 
halfyear results announcements the agm a capital markets day held 
in june to discuss our strategy and contract accounting visits to the 
group’s sites a marine capital markets day in ålesund and industry 
conferences the onetoone and group meetings provide additional 
context around the group’s business strategy and financial 
performance such that shareholders are able to consistently and fairly 
value the group’s businesses
lewis booth the senior independent director is available to major 
shareholders if they have concerns that contact through the normal 
channels has either failed to resolve or is deemed inappropriate since 
his appointment as senior independent director in may 2014 lewis 
booth attended the june capital markets day in london and the 
october marine capital markets day in ålesund both of which allowed 
him to engage directly with investors and analysts 
the group’s website contains uptodate information for  
shareholders which includes an online version of the annual  
report share price information news releases presentations  
to the investment community and information on shareholder 
services it also contains factual data about the group’s businesses 
products and services 
annual general meeting agm
all holders of ordinary shares may attend the company’s agm at 
which the chairman and chief executive present a review of the key 
business developments during the year this year’s agm will be held  
at 1100am on friday 8 may 2015 at the queen elizabeth ii centre  
broad sanctuary westminster london sw1p 3ee 
shareholders can ask questions of the board on the matters put  
to the meeting including the annual report and the running of  
the company generally all directors are invited to attend each agm 
unless unforeseen circumstances arise all committee chairmen  
will be present to take questions at the agm
the company intends to send the agm notice and any relevant related 
papers to shareholders at least 20 working days before the meeting 
the agm notice will be available to view on the group’s website
a poll is conducted on each resolution at all company general 
meetings all shareholders have the opportunity to cast their votes  
in respect of proposed resolutions by proxy either electronically  
or by post following the agm the voting results for each resolution 
are published and are available on our website
shareholders unable to attend the agm can vote on the business  
of the meeting either by post or online
at the 2015 agm a special resolution is being proposed to amend  
the articles by increasing the directors’ powers to incur borrowings  
as set out in article 130 from £3 billion to £5 billion the current fixed 
limit was introduced in 2004 the company has grown very 
significantly over the last decade in terms of market capitalisation 
revenue order book and global operational scale the board considers 
it commercially prudent and timely to refresh the borrowing limit 
this will create additional flexibility for the company to respond  
to any future needs of the business the company’s external 
borrowing is already limited by existing internal controls the need  
to maintain a favourable credit rating the limits contained in the 
financial covenants in the group’s committed borrowing facilities  
and the principles of sound corporate governance the adoption  
of the higher limit will not materially change the company’s 
borrowing policy and the board believes it to be in the best 
commercial interests of the group
information included in the directors’ report
certain additional information that fulfils the requirements of the 
corporate governance statement can be found in the section headed 
other statutory information on page 162 and is incorporated into  
this corporate governance report by reference  directors’ report
rollsroyce holdings plc annual report 2014 64
nominations and governance committee
the role of the nominations and governance committee is to lead 
the process for appointments to the board ensuring there is a 
formal and appropriate procedure for the appointment and 
induction of new directors as part of the governance review 
conducted in the year the board agreed that corporate governance 
would become the responsibility of the nominations committee  
as a result the committee’s remit has been widened so that  
it is responsible for reviewing the governance framework  
going forward 
the committee reviews the composition and balance of the board 
and senior executive team on a regular basis to ensure that the 
group has the right structure knowledge skills and experience  
in place to ensure effective management of the group
committee members and attendance 
the committee which met four times during 2014 as the 
nominations committee consists of all of the nonexecutive 
directors
members attendance in 2014
ian davis chairman 44 
dame helen alexander 44
lewis booth cbe 44
ruth cairnie appointed 1 september 2014 11
sir frank chapman 44
iain conn retired 1 may 2014 22
warren east cbe 44
lee hsien yang 34
john mcadam 44
john neill cbe 44
jasmin staiblin 44
responsibilities
• reviewing the structure size and composition including skills 
knowledge experience and diversity of the board and its committees 
and make recommendations to the board
• giving consideration and formulating plans for succession planning  
for directors and senior executives
• evaluating any conflicts of interest that the directors may have
• reviewing the board’s diversity policy
• reporting to the board on the company’s corporate governance practices 
and procedures to ensure they and their development and 
implementation remain appropriate for a group of the size and 
complexity of rollsroyce and reflect best practice principles
• overseeing induction plans for directors
• reviewing the results of the annual board performance evaluation
• reviewing the independence of the nonexecutive directors
• conducting an annual evaluation of the chief executive
the terms of reference for the committee were reviewed during the 
year and can be accessed on the website
board balance and composition
during the year the committee reviewed the balance and 
composition of the board taking into account skills knowledge 
experience and diversity the review highlighted the skills and 
attributes required in order to determine and identify new board 
members 
nationalities of the board
uk 11
us 1 
singaporean 1
german 1
balance of board
chairman 1
executive 
directors 4 
nonexecutive 
directors 9
we are confident that we now have the right mix of skills 
experience and diversity across the board membership we benefit 
from extensive experience of working in global and complex 
businesses operating in diverse geographical and product markets 
our nonexecutive directors have extensive experience of working 
at the most senior levels within complex multinational companies 
and organisations and our audit committee chairman was cfo  
of a global company they have had direct experience of a range  
of significant factors in common with rollsroyce including product 
quality and customer service across a diverse range of engineering 
manufacturing and extractive environments innovative 
technology and longterm product development our nonexecutive 
directors also have extensive listed company experience with a 
good understanding of investor relations financing reporting and 
regulatory issues 
the appointment of irene dorner who has extensive risk 
management and international experience will be a strong 
addition to our board we are particularly pleased that she will be 
joining our safety and ethics committee as well as the nominations 
and governance committee from the date of her appointment
we are satisfied with the current composition of the board 
although the chairman and the committee will of course  
regularly review membership of the board and ensure we continue 
to have the requisite skills and experience as our markets and 
product mix develop
tenure of nonexecutives
0 – 3 years 4
3 – 6 years 2
6 – 9 year s 3  directors’ report
65
the recruitment processes are formal rigorous and transparent job 
specifications are drawn up for all new appointments against which 
potential candidates are considered recommendations are made to 
the board who consider and approve appointments we were 
pleased to note independent audit’s findings the directors feel that 
the recruitment processes have been sufficiently transparent 
inclusive and that the director succession plans are wellstructured 
and are discussed openly with the board
the committee discusses with the chief executive the senior 
executive positions and succession plans and this will continue  
to be a particular point of focus during 2015
ruth cairnie joined the board as a nonexecutive director with 
effect from 1 september 2014 her strategic and international 
experience and her roles in addressing technology and 
environmental challenges will enable her to make a significant 
contribution to rollsroyce mwm consulting was engaged as  
the search consultants for a new nonexecutive director with  
the particular skills required as set out in its brief which resulted in 
ruth cairnie’s appointment mwm consulting does not provide  
any other services to the company 
david smith joined the board as chief financial officer with effect 
from 4 november 2014 he was previously chief financial officer  
for the aerospace division and has an exceptional track record as  
a financial leader having held a number of senior positions at ford 
and jaguar land rover and more recently as chief financial officer  
at the technology group edwards
the committee is also responsible for nominating appropriate 
individuals for membership of the board’s committees a number  
of changes were considered recommended to the board and 
implemented as part of the governance review
diversity 
increasing diversity is an important element of the changing 
culture in rollsroyce the board fully recognises and embraces the 
benefits of diversity throughout the group at both board and senior 
management levels as it brings a broader and more rounded 
perspective to decision making increasing diversity is an important 
element of the changing culture in rollsroyce
a diverse workforce will help ensure our continued success as a 
global business and contribute towards a better future we face 
challenges in increasing diversity throughout the group but we are 
working with our leadership teams championed by the elt to raise 
awareness and to create a more inclusive workplace 
we have seen increased levels of diversity in both our early career 
and high potential pool and as i detailed in my introduction on 
page 12 graduate intake for women has increased
board members by gender
male 11 79
female 3 21 
senior managers by gender
male 168 93
female 12 7 
with the appointment of ruth cairnie the proportion of female 
nonexecutive directors exceeds 25 33 and in total 21 of the 
board are female although we have not set a fixed target we are 
committed to maintaining the current level of women on the  
board we continue to participate in the ftse 100 crosscompany 
mentoring programme which aims to increase the number of 
eligible female candidates for uk board positions and we have 
comprehensive programmes in place to increase the diversity  
in our talent pipeline 
we will continue to consider candidates for future board 
appointments from the widest possible pool and will only engage 
executive search firms that have signed up to the voluntary code  
of conduct for executive search firms in relation to gender diversity 
on corporate boards 
in addition to the work described above the committee also carried 
out the following
• recommended the appointment of a new senior independent 
director
• renewed terms of office for lewis booth sir frank chapman  
and john neill
• considered the independence of the nonexecutive directors
• considered the schedule of directors’ conflicts of interests and 
recommended that the schedule be approved by the board
• considered the proposal for a revised governance framework  
and recommended to the board that it should be approved 
• reviewed and revised the nonexecutive directors induction 
programme and
• reviewed its own terms of reference
employee headcount by gender
male 46100 85
female 8000  15  directors’ report
rollsroyce holdings plc annual report 2014 66
safety and ethics committee report 
during the year it was agreed that the group’s safety and ethics 
committees would be combined with effect from 1 january 2015 
and to that end i assumed the chairmanship of both committees 
taking over from iain conn as chairman of the ethics committee  
in may 2014 i would like to express my thanks to iain conn for  
his support
committee members and attendance
the combined committee comprises four nonexecutive directors 
sir frank chapman chairman dame helen alexander lee hsien 
yang and john mcadam and will meet at least four times a year
working with the other members over the course of the year  
i have very much valued the way they apply their personal 
experience and am convinced that we have the right combination  
of skills for securing rigorous independent review of our safety  
and ethics practices
responsibilities
• maintaining an understanding of and keeping under review the group’s 
frameworks for the effective governance of safety and ethics
• overseeing and reviewing annually safety and ethics policies
• reviewing progress reports on implementation of annual plans and 
programmes
• reviewing compliance with relevant legislation and regulation in relation 
to safety and ethics and the environment
• reviewing key performance indicators in relation to safety and ethics
• ensuring appropriate training is provided for all employees in relation  
to safety and ethics
the new terms of reference for the combined committee are 
available on the group’s website
the role of the committee is to assist the board in fulfilling its 
oversight responsibilities in respect of all aspects of safety and 
ethics as detailed in the following sections 
the attendance at the separate safety and ethics committee 
meetings during the year is shown below
safety
members attendance in 2014
sir frank chapman chairman 22
iain conn retired 1 may 2014 na
lee hsien yang 22
john mcadam 12 
ethics
members attendance in 2014
sir frank chapman chairman 22
dame helen alexander 33
lewis booth cbe 33
iain conn retired 1 may 2014 11 
lee hsien yang 23
jasmin staiblin 33
 committee chairman until 1 may 2014
safety
product safety
our aerospace and land  sea divisions supply highvalue products 
that people’s lives depend upon these products have to meet our own 
internal standards and strict regulatory requirements with regards  
to safety the product safety policy describes five principles that 
govern our approach leadership commitment and accountability 
level of product safety maintaining and improving product safety 
conforming product and safety awareness and competence the 
safety management system sms links these to our operational 
processes an overview of the key elements is shown below and this 
provides a framework for our product safety governance work
safety management system sms overview
 
company objective
provide products and services that meet or exceed regulatory requirements 
achieving the high standard of safety we require and our customers expect
continuously pursue opportunities to improve the safety of our products
strategies – product safety policy principles
clear leadership and management accountabilities and commitment
continuously improve product safety in design
raise the level of product safety by setting higher standards correcting 
issues and learning from experience
improve product quality to support product safety
safety awareness and competence for all our people
key enablers
capability
competence  
and capacity
rollsroyce 
management 
system
high consequence 
group processes
methods  
and standards
rollsroyce 
specific and 
external
organisational 
structures
product safety 
boards
quality boards
process councils directors’ report
67
discover more online
wwwrollsroycecomsustainabilitybetter
businessethics
the safety committee conducted a thorough review of our product 
safety approach during 2014 including receiving detailed briefings  
on the sms and the safety assurance framework in part the objective 
was to make sure all committee members are fully familiar with  
our process framework also we used this ‘walk through’ as an 
opportunity for management to ensure that the processes can  
be readily understood and communicated and for sharing our 
experience of similar processes from companies we have worked  
with this detailed review will continue during 2015
in respect of the policy of continuous improvement the committee 
reviewed progress with a significant product safety programme 
aimed at improvements to our parts classification process in addition 
we extended the committee’s understanding of product safety risks 
outside of the aerospace activities focusing on marine activities  
we kept under review the product safety metrics emanating from 
management’s safety boards and management’s response to 
significant product safety events important highlights were  
brought to the attention of the board
health safety and environment
the committee received reports on the hse risk profile 
improvements currently being implemented in the hse 
management system periodic performance trends and a new 
balanced scorecard together with major incident investigation 
reports the committee reviewed the insights from serious chemical 
incidents which occurred during the year at our crosspointe and 
indianapolis facilities in the us common themes were identified from 
the investigations that were carried out and improvements were 
identified that will help to strengthen controls across the group
we agreed to a rolling agenda of hse topics for future discussion 
and reviewed the group level hse risk profile to assess levels of 
control and current improvement and assurance priorities and 
programmes in 2015 the committee will continue oversight of group 
hse across the three strategic areas of people and culture 
management systems and risk based improvement programmes 
in both areas of product safety and hse we have been very pleased 
with the openminded and constructive approach management have 
exhibited in looking for opportunities to learn from the committee’s 
experience of practice elsewhere i was pleased to note that the 
external review of the board’s work highlighted the efforts made  
by both management and the committee to undertake a rigorous 
review and to work together to consider any opportunities for 
strengthening our approach
the committee discussed hse and process safety leadership and 
culture and creating the right environment for effective management 
systems and risk control we also considered progress with significant 
programmes most notably the groupwide electrical safety 
enhancement initiative further information on hse performance  
can be found in sustainability on pages 45 to 47
global code of conduct  
global code
we reviewed updates on the global code 
rollout and training programmes by the 
end of 2014 96 of all employees had 
provided certification in respect of the 
global code the rollout of the global code 
in power systems commenced in 2014 
whilst we are satisfied with this level of 
completion the committee is looking  
at the reasons behind the outstanding gaps
the red flag group a us company that 
provides consulting and governance 
training to help companies manage risk has 
ranked rollsroyce third amongst  
the ftse 100 companies that had their code 
of conduct assessed 
96
of employees have 
certified that they 
have read and 
understood the 
global code of 
conduct
global code  
of conduct
 a highperformance 
safety culture with sound 
and ethical business 
practices wherever we 
operate is being embedded 
in everything that we do”  directors’ report
rollsroyce holdings plc annual report 2014 68
safety and ethics committee report 
continued
security
the committee received a briefing on personnel security matters  
for employees travelling to higherrisk regions and how the  
group reviews operational security for those regions international 
travellers complete mandatory inhouse elearning courses  
before travelling to regions where specific security risks have  
been identified
ethics
regulatory investigations
we reported last year that the serious fraud office sfo had begun  
a formal investigation the committee received regular updates on 
the regulatory investigations the group is continuing to cooperate 
fully with the authorities in the uk us and elsewhere as the 
investigation is still ongoing we are unable to give any further 
details or a timescale when the investigation will conclude
lord gold’s review
the group has continued to implement the recommendations 
made in lord gold’s interim report in 2013 and has developed  
an ethics and compliance improvement programme to deliver the 
recommendations in december 2014 lord gold issued a second 
interim report and the recommendations made in that report have 
been accepted by the company and incorporated into the 
improvement plan
during the year we received updates on this improvement 
programme and the group has made good progress throughout 
the year lord gold and the director of risk have held focus groups 
made up of employees throughout our domestic and international 
operations to obtain feedback on the group’s ethics and compliance 
improvement programmes
antibribery and corruption policies abc
we reviewed progress made by the abc compliance team who 
completed a review of all of the group’s current advisers reducing  
the overall number significantly all advisers must comply with the 
group’s new adviser policy
during 2014 the abc compliance team reviewed issued and 
updated a suite of new groupwide mandated policies including a 
new group abc policy advisers confidential information gifts and 
hospitality and facilitation payments the majority of the revised 
abc policies were issued in 2014 with the balance issued in january 
2015 a further abc training programme will be rolled out to all 
staff in 2015 the size structure and skills of the ethics and abc 
compliance team were reviewed to ensure that the composition  
of the team is appropriate for the demands placed upon it 
ethics line
we reviewed effectiveness of the company’s 247 confidential 
reporting line ‘the ethics line’ which since its relaunch last year  
has seen calls rise significantly from the 2013 level of 588 to the 
2014 level of 850 this is thought to be mainly due to improving 
awareness and engagement across the group following the global 
code rollout and mandatory ethics training the oversight group 
formed in 2014 review all highrisk cases analyse the contact 
trends and provide updates to the committee highlighting  
any highrisk cases where appropriate we share cases with  
the audit committee 
the committee fully recognises the importance of the board 
showing leadership around ethical and behavioural standards  
we have committed significant board time to the issue during the 
year and have taken steps to send clear messages including all 
directors completing the ethics training course lord gold has 
regularly discussed his work with both the board and the 
committee as part of the review of the board’s effectiveness our 
approach was considered by independent audit who recognised  
the structured and committed approach taken by the board over 
the course of the year we are now turning our attention to working 
out the most effective way of monitoring policy and process 
implementation and gauging behaviour and attitudes so that the 
board can be confident that the right values and attitudes are being 
consistently reflected in the way we work
conclusion
safety in rollsroyce is given the highest priority for our customers 
those affected by the operation of our products our people and the 
communities in which we work overall product safety and hse 
performance is improving but as we strive for continuously 
improving standards there is still more we can and will do 
the board has been explicit that improper business conduct will  
not be tolerated and disciplinary action will be taken against 
anyone not adhering to the ethics and compliance policies  
we are making excellent progress with our ethics programme
a highperformance safety culture with sound and ethical business 
practices wherever we operate is being embedded in everything 
that we do in order to underpin longterm sustainability and to 
deliver to all stakeholders our brand promise of ‘trusted to  
deliver excellence’
sir frank chapman
chairman of the safety and ethics committee directors’ report
69
audit committee report 
the audit committee consists of nonexecutive directors and met 
five times in 2014
members attendance in 2014
lewis booth cbe chairman

55
iain conn retired 1 may 2014 33
warren east cbe 35
john neill cbe 55
 lewis booth has recent and relevant financial experience his biography is on page 54
sector audit committees
in support of the committee’s work each of the group’s businesses  
now has its own sector audit committee we felt that this would be 
helpful in building in a level of detailed executive oversight which 
would strengthen further accountability for the quality of financial 
reporting and internal control at the divisional and sector level all 
the sector committees are chaired by the director of internal audit 
to introduce a degree of independence from management and to 
support their effective organisation and operation
the sector committees meet twice a year to consider the accounting 
policies judgements and estimates and the internal control 
environment of each business we receive formal reports and 
discuss the results of these meetings this gives us further insight 
into the extent of management control and accountability broadens 
our reach within the group and informs areas for further 
consideration at our meetings over the next year their focus on 
internal control and risk management systems will develop further 
our work during 2014
financial reporting
in meeting our responsibilities over the past year we have devoted  
a lot of time to discussing accounting policies and judgements and 
our work and conclusions are discussed in detail below coming out 
of these discussions we fully recognise the need for the group to 
communicate clearly to shareholders and to give them confidence 
that our accounting policies are sound and subject to thorough 
review by the committee as well as the auditors and management 
we review financial announcements and financial statements  
with both management and kpmg in 2014 we focused on
• compliance with financial reporting standards and governance 
reporting requirements
• the appropriateness of accounting policies focusing on areas 
requiring significant judgements
• the procedures and controls around estimates that are key in 
applying accounting policies
• the response of senior executives to their perception of the 
increased risk relating to the pressure on and incentives for 
management to achieve financial targets
• whether the annual report and financial statements taken as  
a whole is fair balanced and understandable and provides the 
information necessary for shareholders to assess the group’s 
position and performance business model and strategy and
• any relevant correspondence from regulators
i am pleased to present the 2014 report of the audit committee 
our key aim is to review and report to the board on financial 
reporting internal control and internal audit and to ensure the 
relationship with the external auditors is open and effective  
our work to deliver this objective during 2014 is summarised later 
in this report i would like to thank the members of the committee 
the executive management team and kpmg for the open 
discussions that take place at our meetings and the importance  
they all attach to its work
the terms of reference for the committee were reviewed during the 
year as part of the wider governance review this has clarified some 
aspects of the committee’s responsibilities primarily around 
oversight of risk management from 2015 we will be working to  
this revised version which is available on the group’s website
responsibilities
financial reporting
• reviewing the financial results announcements and financial statements 
and monitoring compliance with relevant regulations
• reviewing the appropriateness of accounting policies and the supporting 
key judgements and estimates
internal control and internal audit
• assessing the scope and effectiveness of the systems to identify manage 
and monitor financial and nonfinancial risks
• reviewing the procedures for detecting monitoring and managing the 
risk of fraud
• reviewing the scope resources results and effectiveness of internal audit 
external audit
•  overseeing the relationship with the external auditor reviewing the 
effectiveness of the external audit process and making recommendations 
to the board regarding the external auditor’s appointment directors’ report
rollsroyce holdings plc annual report 2014 70
accounting policies significant judgements and estimates
given the longterm nature of the group’s businesses it is inevitable that most of the accounting policies subject to significant 
accounting judgement will remain the same from year to year though the facts and circumstances on which those judgements  
are based will vary in 2014 our discussions were principally on whether
key issue activity
• the key accounting judgements set out on 
pages 101 to 103 are appropriate 
the group finance department presented to the committee the key accounting judgements and the 
reasons why these judgements had been made we were satisfied that these are the appropriate key 
judgements for 2014 two new areas of judgement were identified the first related to the disposal of the 
energy business — see below the second related to whether the leaseback of spare engines that the group 
has sold to joint ventures should be classified as operating leases when the profit on sale is recognised 
immediately or finance leases when it is spread over the lease term we concluded that certain 
arrangements should be treated as finance leases and accordingly the profit has been deferred
• there are any indications of impairment of 
the carrying values of the intangible assets 
in civil aerospace
we considered the business plans for the relevant engine programmes including the key assumptions on 
which they are based and which support the value in use assessments for the intangible assets we were 
satisfied that no impairments were required for 2014 we focused particularly on the intangible assets 
related to the trent 900 programme
• the estimates used in accounting for 
longterm contractual arrangements in 
civil aerospace are appropriate
we reviewed the forecasts of future contract performance on which the accounting is based we also 
considered performance to date against these forecasts and the results of a detailed review of certain 
aspects of the processes supporting these forecasts where the accounting results in a contract asset  
we assessed the recoverability of the asset against agreed criteria we were satisfied that the forecasts 
have been prepared on an appropriate and consistent basis
• the provisions for customer financing 
liabilities in civil aerospace are adequate
we considered the likelihood of the liabilities crystallising based on an assessment of customers’ fleet 
plans and their creditworthiness we also considered the value of any security held based on thirdparty 
valuations we were satisfied that provisions have been made on an appropriate basis for 2014 we 
considered in particular the release of previously established provisions relating to unexpired guarantees 
under which the group’s obligations are judged to have been terminated 
• the disposal of the energy business has 
been appropriately accounted for
we considered the estimates made in determining the amounts of the proceeds deferred in respect  
of the group’s continuing obligations for transitional commitments to provide future goods and services 
to siemens we were satisfied that the disposal has been accounted for appropriately
• the disclosures of contingent liabilities in 
particular those in respect of the possible 
outcome of the sfo enquiries are adequate
we considered legal advice in respect of the sfo enquiries we were satisfied that the disclosures 
appropriately reflect the current position
we place considerable emphasis on making sure that the 
accounting policies are appropriate so that the financial statements 
faithfully represent the results and financial position of the group 
and its underlying contractual arrangements this is particularly so 
for the civil aerospace business where our business model includes 
a number of unique features 
as described in the business model on page 24 the development  
of gas turbine engines for use in civil aircraft applications involves 
large upfront investments which may be shared with suppliers and 
which are expected to be recovered over long periods from the sale 
of oe and subsequently from the aftermarket from the sale of 
spare parts and engine maintenance work much of the aftermarket 
repair and overhaul is provided through longterm service 
agreements given this long exposure which may extend for 
decades from the initial concept the amount of revenue and profit 
recognised during any period requires a significant number of 
accounting judgements and estimates consequently one of our 
primary responsibilities is to ensure that the bases for these 
judgements and estimates are robust 
as reported last year we monitored the enquiry from the frc’s 
conduct committee on the accounting for risk and revenue sharing 
arrangements rrsas i joined management and kpmg in meeting 
with the conduct committee to hear firsthand and to participate in 
the debate we considered carefully the conduct committee’s views 
and possible alternative approaches the audit committee 
concurred with management’s view that the revised policy adopted 
in 2013 best reflects the nature of the transactions
we also monitored an enquiry from the conduct committee 
regarding the accounting for longterm contractual arrangements 
in civil aerospace no adjustments resulted from this however the 
discussions did lead us to conclude that we had been insufficiently 
clear in explaining how the different ways we do business with our 
civil aerospace customers lead to our accounting policies in 
response to this and the views of investors the group has taken two 
principal steps firstly an investor day was held in june at which 
management explained the different commercial arrangements 
that apply and how we account for each secondly we have made 
enhancements to this year’s annual report primarily
audit committee report
continued directors’ report
71
• the description of the civil aerospace business now emphasises 
that whenever we sell engines we secure contractual rights to 
profitable aftermarket business even where there is no totalcare 
agreement consequently the description of the resulting 
intangible asset previously referred to as ‘recoverable engine 
costs’ has been changed to ‘contractual aftermarket rights’
• the accounting policies include a plain english description of  
the rationale for the accounting we apply and the detailed 
descriptions have been enhanced see page 101
 we place considerable emphasis 
on making sure that the group’s 
accounting policies are appropriate”
following these two enquiries we instigated a review of all the 
group’s significant accounting policies as described in note 1  
of the financial statements and the key judgements and estimates 
supporting them
these reviews were undertaken by management and involved 
analysis of the relevant accounting standards and guidance 
comparative analysis with other companies with similar or 
analogous transactions to the extent available consideration  
of the pros and cons of options in the context of achieving the most 
faithful representation of the transactions in the group’s accounts 
and informal discussions with accounting firms other than kpmg 
kpmg also provided the committee with its views 
we were satisfied with the results of these reviews which 
concluded that the accounting policies adopted by the group were 
the most appropriate available and that enhancements and 
revisions in note 1 should be made to add clarity to the accounting 
policies and the rationale on which they are based
since the year end we have reviewed the form and content of the 
group’s 2014 annual report together with the production process 
used to develop and verify the report we have reported to the 
board that taken as a whole we consider the annual report to  
be fair balanced and understandable
internal control and risk management
to support the board in carrying out its review of internal controls 
and risk management we reviewed the process by which the board 
reaches its conclusion this involved consideration of the key 
findings from the ongoing oversight monitoring and reporting 
processes management representations and independent 
assurance reports 
we are currently assessing how we will develop our approach to 
meeting the revised code standards requiring the monitoring of 
internal control and risk management as an ongoing process as well 
as evaluating effectiveness at least annually
from 2015 onwards as a result of a broad ranging review of  
our risk governance approach our overall assessment will combine 
oversight of the principal risks management activities undertaken 
by each board committee or the board as explained in the 
chairman’s introduction on page 56 the audit committee will 
consider financial control and reporting fraud and it risks together 
with an assessment of the integrated control and risk management 
approach covering all financial and nonfinancial risks in this  
way we aim to make sure that the board’s oversight of risks and  
risk management is rigorous in its coverage and depth making  
sure that principal risks are assessed in detail and that one 
committee has an integrated review of how the internal control 
framework is operating
in line with this during 2014 we carried out an assessment of 
financial controls primarily based on a selfassessment of these 
controls by each of the businesses a priority for 2015 is to 
standardise and where necessary enhance the group’s financial 
internal control framework against which this assessment is made 
this will create greater consistency particularly in the group’s small 
operations and reinforce ownership and accountability for effective 
internal control throughout the organisation
we also schedule detailed reviews with the management of each  
of the group’s businesses and with key functions the objective of 
these reviews is to have the opportunity to discuss and challenge 
key accounting judgements and estimates and to assess the 
internal control and risk management systems they also provide 
the committee members with the opportunity to meet and 
evaluate the financial and risk management personnel deeper  
in the group 
at our meetings during 2014 we received presentations from 
• the civil aerospace business — we discussed the key business 
risks including possible competitor actions ensuring profitable 
delivery of the increased engine volumes ensuring ontime 
delivery of new programmes business continuity risks including 
supply chain disruption and market shock due to external events 
or factors reducing air travel accounting policies key accounting 
judgements estimates and controls credit risks associated with 
customers and corporatecare and totalcare accounting 
• the marine business — we discussed key challenges for the 
business slower than anticipated recovery of the business’s 
markets cost reduction initiatives and delivering critical systems 
changes key business risks competitor actions linked with failure 
to address our own cost base market shock to which the offshore 
sector is particularly vulnerable failure to invest in the right 
technologies and failure to maintain customer satisfaction 
through poor quality or late delivery the control environment  
in a widely dispersed business erp systems and key accounting 
policies and judgements including warrantyreliability issues 
with a focus on an emerging product quality issue
• the chief information officer — we discussed current trends in 
cyber security including inherent risks and vulnerabilities and the 
current landscape the group’s ‘defence in depth’ approach to 
cyber security the group’s recent experience of attacks and plans  directors’ report
rollsroyce holdings plc annual report 2014 72
for the future the committee asked for kpmg’s views on the 
group’s approach we agreed that committee members would 
visit the group’s key cybersecurity centre in 2015 to see the 
approach being applied in practice
• the director of tax — we discussed the approach to managing 
the group’s tax affairs the role of the tax function and its 
interaction with other areas of finance and external suppliers  
key tax risks and how they are managed the profile of tax 
payments over the last five years the effective tax rate the uk  
tax position in particular the impact of rd expenditure 
pension contributions and the timing of tax payments on 
totalcare profits and key taxrelated accounting policies and 
judgements including accounting for advance corporation tax 
these reviews provide the committee with invaluable insights into 
the risks facing the group and the management of them and the 
application of key accounting policies judgements and estimates
we were also notified of any matters raised through the group’s 
whistleblowing arrangements or otherwise that related to financial 
reporting the integrity of financial management or fraud there 
were no cases of fraud that were significant or that demonstrated 
weaknesses in internal controls additionally we monitor 
compliance with the group’s policies in respect of expenses 
incurred by the directors and other senior executives no significant 
issues were identified
internal audit
the new director of internal audit has been working closely with the 
committee in undertaking a full review of our audit structure and 
approach this has given us an opportunity to review internal audit’s 
effectiveness the discussions on his conclusions and suggestions for 
changes have formed the basis of the committee’s review of internal 
audit effectiveness over the course of 2014
we are very pleased with the progress that has been made a number 
of changes have been made to improve the structure of audit reports 
and we are satisfied that the approach to reporting to the committee 
is now working well a process for mapping risks controls and 
assurance is underway and this will help ensure that our audit 
coverage is sound
twice a year we review detailed updates on significant findings and 
audit operations in particular we review the nature and number of 
issues raised by internal audit and the time to complete the related 
actions which during 2014 we considered to be reasonable we were 
pleased to see that the responsiveness of management across all 
areas of the business to audit findings has improved and we consider 
that audit findings are being followed through effectively and 
promptly between these sixmonthly updates we review a 
dashboard which identifies key trends 
i meet the director of internal audit in private before each meeting 
and on an adhoc basis throughout the year and the committee as  
a whole has a private meeting with him at least once a year these 
discussions cover the activities findings resolution of control 
weaknesses progress against the agreed plan and the resourcing  
of the department
we were satisfied that the scope extent and effectiveness of 
internal audit work are appropriate for the group and that the 
director of internal audit has a sound plan for ensuring that this 
continues to be the case as our business progresses and the risks we 
face change
external auditor
the audit cycle is continuous in april following the completion of 
the 2013 audit the lead audit partner presented the audit strategy 
for 2014 identifying kpmg’s assessment of the key audit risks and 
the proposed scope of audit work in addition to those described in 
the auditor’s report pages 154 to 159 these risks were valuation of 
derivatives accounting for rrsas warranties and guarantees 
valuation of derivative financial instruments valuation of pension 
liabilities recoverability of tax assets and adequacy of tax 
provisions litigation and claims and the form and content of the 
annual report
as part of the reporting of the half and fullyear results in july 2014 
and february 2015 kpmg reported to the committee on their 
assessment of the group’s judgements and estimates in respect  
of these risks and the adequacy of the reporting 
the 2013 annual report included for the first time an extended 
auditor’s report under new auditing standards we agreed to assist 
kpmg in their trialling of a report that went beyond the minimum 
requirements we were pleased to note the positive comment that this 
report generated and have agreed to continue with this approach 
i meet the lead audit partner before each meeting and the whole 
committee meets with kpmg in private at least once a year in 2014 
i met senior members of the kpmg team to discuss key accounting 
policies judgements and estimates in depth and upon his 
appointment to the committee warren east was briefed by kpmg 
in addition i met with a small group of kpmg’s senior partners to 
discuss emerging and leading audit committee practices in 
comparable uk listed companies as well as other topical matters
nonaudit services provided by kpmg
in order to safeguard auditors’ independence and objectivity we  
do not engage kpmg for any nonaudit services except where it is 
work that they must or are clearly best suited to perform fees paid 
to kpmg for audit audit related and other services are set out in 
note 8 to the financial statements
audit committee report
continued directors’ report
73
all proposed services must be preapproved in accordance with an 
agreed policy which is approved annually we also review the 
nonaudit fees charged by kpmg quarterly
audit fees 2014
audit £57m
nonaudit £22m
audit fees 2013
audit £58m
nonaudit £29m
nonaudit related fees paid to kpmg during the year were 39  
of the audit fee principally in respect of assurance work requested 
by siemens in respect of the disposal of the energy business grant 
claims and tax compliance the nature and level of all services 
provided by the external auditor is a factor taken into account by 
the audit committee in its annual review of the external auditor
as described in last year’s annual report we took the decision to 
allow power systems to complete engagements already in progress 
nonaudit related services provided to power systems in 2014 
amounted to £09 million a reduction of 57 compared to 2013
based on our review of the services provided by kpmg and 
discussion with the lead audit partner we concluded that neither 
the nature nor the scale of these services gave any concerns 
regarding the objectivity or independence of kpmg
reappointment of auditor and audit tendering
following the completion of the audit we reviewed the 
effectiveness and performance of kpmg with feedback from 
committee members senior finance personnel and internal audit  
a wide range of factors were considered including independence 
and objectivity business understanding technical knowledge 
quality continuity and experience of the audit personnel in 
particular the lead audit partner responsiveness planning and risk 
identification working with management the quality of reporting 
to and discussions with the committee cost effectiveness and the 
quality of the report to shareholders we also considered the reports 
on kpmg by the frc’s audit quality review team the audit of 
rollsroyce was not subject to their review in 2014 we also 
reviewed the fees of the external auditor
our conclusions were that the external audit was carried out 
effectively efficiently and with the necessary objectivity and 
independence the committee and the board have recommended 
their reappointment at the 2015 agm 
kpmg were appointed as auditors in 1990 and this appointment 
has not been subject to a tender process since that date no 
contractual obligations restrict our choice of external auditors  
the lead audit partner is required to rotate every five years and 
other key audit partners are required to rotate every seven years 
jimmy daboo took over as lead audit partner in 2013 
the new eu directive requires that audits be tendered at least every 
ten years and that an incumbent auditor can only be reappointed 
once under the transitional arrangements we will be required to 
appoint a different auditor no later than the audit of the 2020 
financial statements 
the group is a complex and technologically advanced business  
with a long cycle from the development of an engine to its eventual 
retirement we believe that kpmg’s knowledge of this built up over 
a number of years enhances the effectiveness of the audit and that 
the existing professional requirements such as the rotation of audit 
personnel maintain independence 
in accordance with the requirements of the eu directive we plan  
to recommend a tender of the audit during the tenure of the 
current lead partner which subject to kpmg’s annual re
appointment would end following the 2017 audit before we make 
such a recommendation we will satisfy ourselves that i it will not 
be unnecessarily disruptive taking account of any other activities 
and ii appropriate plans are in place to ensure audit effectiveness 
is maintained we do not propose to tender the audit in 2015
looking forward
the work of an audit committee is increasingly broad and complex 
we are very conscious of the need to keep on top of developments  
in financial accounting and reporting and to stay alert to regulatory 
changes around external audit there is also considerable change  
in our responsibilities to make sure that the internal control 
framework is working well and to give the board confidence that  
the business is under control and risks are appropriately mitigated
the external review undertaken in 2014 gave particular attention  
to the committee’s work and how as a board and committee we are 
approaching internal control and risk management this risk 
governance assessment along with the wider governance review 
conducted by the board has helped me consider how we will 
develop further the committee’s work
the reviews have highlighted areas where oversight and risk 
management need more structured review by the committee  
so that we receive an integrated picture of the effectiveness of  
the control framework in addition to our usual active oversight  
of financial controls as described in this report we have made  
good progress during the course of this year very ably and actively 
supported by the management team i look forward to seeing that 
progress continue with the implementation of the new risk 
management framework and other initiatives during 2015 
lewis booth cbe
chairman of the audit committee directors’ report
rollsroyce holdings plc annual report 2014 74
remuneration committee report
on behalf of the board i am pleased to present our directors’ 
remuneration report for 2014
the work of the committee
during the year the committee continued to perform its 
responsibilities and in particular we kept under review the 
performance against incentive plans and the appropriateness  
of metrics on a longerterm basis the committee initiated a review 
of the group’s remuneration principles to ensure that they remain 
aligned with our strategic objectives a project is now underway  
to develop an integrated reward strategy which also aligns with  
our overall people strategy 
during 2014 the committee
• endorsed the outturn of the 2013 annual bonus and 2011 psp
• established new rules for the psp  including malus and clawback 
provisions
• considered the requirements of the new remuneration reporting 
regulations in formulating the remuneration report and 
recommended the approval of the 2013 report to the board
• reviewed executive directors’ base salary levels
• established new minimum shareholding requirements for 
executive directors
• set 2014 annual bonus targets and performance targets for the 
psp 2014 – 2016
• considered a benchmarking report on executive benefits
• considered a benchmarking report for the executive salary review 
in 2015
• approved midyear psp grants to certain senior executives
• considered the projected outturns for the 2014 annual bonus  
all employee bonus scheme and the 2012 psp
• agreed termination terms for the former chief financial officer 
• agreed the remuneration terms for david smith who was 
appointed as chief financial officer 
• reviewed our terms of reference 
• reviewed our reward principles
• considered provisional targets for 2015 and
• considered the structure of the annual bonus for 2015
i am confident that we have covered our responsibilities effectively
 our remuneration policy  
is aligned with our strategy  
to generate the funds we need  
to invest in future growth”
as part of the 2014 board review the effectiveness of the committee 
was considered by the external reviewers independent audit i was 
pleased to note its view that the makeup of the committee is 
sound with members bringing a good knowledge of remuneration 
issues and all making an informed contribution our processes 
ensure the right issues are considered in a timely way and with 
robust discussion suggestions were put forward to strengthen 
further the way management works with the committee and we 
will follow through on these in 2015 
committee members attendance and responsibilities
the remuneration committee comprises four independent 
nonexecutive directors and met five times in 2014
members attendance in 2014
dame helen alexander 55
ruth cairnie appointed 1 september 2014 33
sir frank chapman 55
john mcadam 55
the chairman the chief executive the group hr director the hr 
director reward and pensions the company secretary and the chief 
financial officer were invited to attend meetings none of them was 
present during any discussion of their own remuneration packages
when considering remuneration for our senior executives the 
remuneration committee has used the policy framework approved 
by shareholders at the agm in may 2014 
our remuneration policy aligns the interests of our directors and 
senior executives with that of our shareholders by linking incentives  
to the performance of the business on both short and longterm 
measures our performance was not as strong as targeted during 
2014 and therefore we will not be making an annual bonus payment 
as a result
the performance share plan psp granted in 2012 was measured 
over a threeyear performance period that ended at the end of 2014
the three measures for performance earnings per share eps cash 
flow per share cps and total shareholder return tsr have 
exceeded the base threshold which has resulted in the 2012 grant 
vesting in march 2015 but at a lower level than in previous years directors’ report
75
we continue to believe our incentive programmes support our 
business strategy our shortterm incentive is based on cash and 
profit which are key objectives it is also linked to personal 
performance which includes longerterm strategic objectives  
our longterm incentive is primarily based on cash flow per share 
which continues to be critical for our growth and success part of 
the annual bonus is deferred into shares and executives have an 
ongoing shareholding requirement which aligns them to the 
interests of shareholders
responsibilities
• considering and making recommendations to the board on the strategy 
and policy for the remuneration of the executive directors the chairman 
and members of the elt
• determining the design conditions and coverage of annual and long
term incentive plans for senior executives and approving total and 
individual payments under the plans
• determining targets for any performancerelated pay plans
• determining the issue and terms of all sharebased plans available to all 
employees
• determining compensation if any in the event of termination of service 
contracts of executive directors or elt members
annual bonus outcome
group underlying profit and cash flow were below the base level 
targets of performance set by the remuneration committee and 
therefore there will be no bonus paid for 2014 
psp outcome
over the threeyear performance period for the 2012 psp grant 
earnings per share growth was 16 which exceeded the oecd 
index of consumer prices of 5 and cash flow per share was 63p 
this resulted in 49 of the shares conditionally granted being 
released the company’s total shareholder return tsr performance 
was 39th in the ftse 100 over the threeyear performance period 
which resulted in a 37 increase in the shares released to executive 
directors 
2015 salary review
the committee has reviewed the salary levels of the executive 
directors in accordance with our approved remuneration  
policy the executive directors did not receive an increase in 2014 
and again in 2015 john rishton and james guyette will not receive  
a salary increase colin smith and david smith will receive salary 
increases based on their individual business circumstances and 
their positioning within the external market range the details  
of the increases are on page 77 
loss of office payments
the committee gave careful consideration to remuneration matters 
relating to the departure of mark morris the former chief financial 
officer in accordance with the remuneration policy agreed by the 
board and approved by shareholders at the 2014 agm the details  
of the payments are on page 80
overall our remuneration policy is aligned with our strategy to 
generate the funds we need to invest in future growth our 
overarching aim is to ensure the longterm health of the company 
therefore we need to ensure and continually monitor that our 
incentives are marketcompetitive and are designed to attract 
retain and develop the best talent which will drive longterm value 
and future business success 
dame helen alexander
chairman of the remuneration committee directors’ remuneration report
salaryfees a
£000 
benefits b 
£000 
bonus c 
£000 
ltip d
£000
other e
£000
subtotal 
£000
pension f
£000
total 
£000 
2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
executive directors
john rishton 925 921 151 125 – 824 1007 3478 – – 2083 5348 303 303 2386 5651
james guyette 510 535 108 114 – 423 373 1256 – – 991 2328 462 532 1453 2860
mark morris
1
429 506 149 159 – 383 – 318 – 6 578 1372 137 162 715 1534
colin smith cbe 525 523 138 128 – 394 364 1140 – – 1027 2185 131 531 1158 2716
david smith
2
 84 – 2 – – – – – – – 86 – 27 – 113 –
subtotal 2473 2485 548 526 – 2024 1744 6192 – 6 4765 11233 1060 1528 5825 12761
chairman and nonexecutive directors
ian davis
3
425 292 3 2 – – – – – – 428 294 – – 428 294
dame helen alexander 85 75 1 – – – – – – – 86 75 – – 86 75
lewis booth cbe 100 80 6 10 – – – – – – 106 90 – – 106 90
ruth cairnie
4
23 – – – – – – – – – 23 – – – 23 –
sir frank chapman 85 75 3 3 – – – – – – 88 78 – – 88 78
iain conn
5
29 82 – – – – – – – – 29 82 – – 29 82
warren east cbe
6
67 – – – – – – – – – 67 – – – 67 –
lee hsien yang
7
67 – 2 – – – – – – – 69 – – – 69 –
john mcadam 67 60 – – – – – – – – 67 60 – – 67 60
john neill cbe 67 60 2 2 – – – – – – 69 62 – – 69 62
jasmin staiblin 67 60 1 2 – – – – – – 68 62 – – 68 62
subtotal 1082 784 18 19 1100 803 – – 1100 803
total 3555 3269 566 545 – 2024 1744 6192 – 6 5865 12036 1060 1528 6925 13564
1 
mark morris left the company on 4 november 2014
2 
david smith was appointed as an executive director on 4 november 2014
3 
ian davis was appointed chairman on 2 may 2013
4 
ruth cairnie was appointed as a nonexecutive director on 1 september 2014
5 
iain conn retired as a nonexecutive director on 1 may 2014
6 
warren east cbe was appointed as a nonexecutive director on 1 january 2014
7 
lee hsien yang was appointed as a nonexecutive director on 1 january 2014
this section gives information on directors’ remuneration and incentive outturns and details how the remuneration policy set out  
on pages 86 to 92 will be applied in 2015
the bar chart below shows the total remuneration received for current executive directors except david smith who was only appointed 
on 4 november 2014
 salary values are as at 31 december 2014
† see page 91 for more detail
0
2000
1500
1000
500
2500
3000
3500
4000
4500
5000
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
actual remuneration received which includes 
share price appreciation on the psp grants
salary plus pension and bene�ts
key† 
1 minimum
2 base level
3 ontarget
4 maximum
5 actual
colin smith £000 john rishton james guyette
performance levels
potential value of apra depending 
on the performance scenario
potential value of psp depending 
on the performance scenario
single figure of remuneration subject to audit
directors’ report
rollsroyce holdings plc annual report 2014 76 notes to the table 
a  salaryfees – cash paid in the year james guyette was paid in us dollars translated at £1  us16477 2013 us1565
b  benefits – taxable value of all benefits paid in the year the benefits for the nonexecutive directors relate to travel and subsistence associated with attending board meetings
john rishton 
£000
james guyette 
£000
mark morris 
£000
colin smith cbe
£000
david smith
£000
benefits 2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
car or car allowance including fuel allowance 21 18 11 11 21 24 24 21 2 –
chauffeur services 14 13 – – – – – – – –
financial planning 5 – 18 19 5 – 5 – – –
medical insurance 2 1 7 7 1 1 2 1 – –
life assurance – – 33 38 – – – – – –
club membership fees – – 24 23 – – – – – –
travel and subsistence 3 – – – 23 30 3 3 – –
housing costs 106 93 15 16 99 104 104 103 – –
total 151 125 108 114 149 159 138 128 2 –
c  bonus group profit and cash performance were below the base level targets set by the committee and therefore no bonus was awarded for 2014 
d  longterm incentive plan ltip this is the estimated value of the psp shares that are due to vest in march 2015 2014 being the final year of the performance period and for john 
rishton as well as his psp shares the performance related shares he received on joining the company it is based on the number of shares that will vest multiplied by the average 
share price of 86365p over the quarter ending 31 december 2014 as the vesting price is not known at the date of approval of the directors’ remuneration report the performance 
against targets for 2014 has been determined for these awards as detailed on page 79 and 67 of the original award which includes the tsr kicker will vest the ltip amounts for 
2013 relating to shares that vested in 2014 have been recalculated using the vesting price of 101581p per share the original calculation used a share price of 118452p per share as 
the vesting price was not known at the time 
e  value of the gain made on the exercise of sharesave options is the difference between the exercise price of 387p and the midmarket price of 1062p on the date of exercise relating 
to the sharesave option exercised in 2013
f  pensions for defined benefit plans this is the increase in pension benefit net of inflation for the current year and applying the hmrc methodology multiplier of 20 cash in lieu of 
pension accrual is also included david smith opted not to join the uk defined contribution pension scheme and receives a cash allowance the pension figure shown in the single 
figure table is his benefits accrued from 4 november 2014
base salary 
the committee has reviewed the salary levels of executive directors and the result of the review is shown below executive directors did 
not receive an increase in 2014 and there will be no increase to the salaries for john rishton and james guyette in 2015 david smith’s 
increase reflects that his salary on appointment was positioned to allow scope for progression in the role the increase for colin smith 
reflects the importance of the role to the business along with the current modest positioning compared to the external market range 
name
base salary as at 
1 march 2015
base salary as at 
1 march 2014
 base salary as at 
1 march 2013
john rishton £925000 £925000 £925000
james guyette 840000 840000 840000
colin smith cbe £550000 £525000 £525000
david smith £540000 £510000 na
  david smith’s salary level was set at the date of his appointment on 4 november 2014 
annual bonus 
the annual bonus pool is delivered under the annual performance related award plan apra and in 2014 executive directors were 
eligible for award levels detailed in the remuneration policy
apra 2014 performance measures
the apra bonus is determined by group financial performance and personal performance and for 2014 the group financial measures 
were cash flow performance and profit levels for both measures were set as  follows
profit element  cash element   of maximum bonus
base 15 15 30
target 30 30 60
maximum 50 50 100
the group financial performance is the addition of the cash and profit outturns provided a specified minimum level is achieved on both 
after deduction of the cost of bonus from profit otherwise no bonus is payable 
directors’ report
77 the 2014 financial performance resulted in no apra bonus outturn
group underlying profit group underlying profit was £1649 million which was below the base level of £1800 million and therefore  
no bonus was payable for 2014 
cash flow cash flow for the year was an outflow of £232 million which was below the hurdle of zero inflowoutflow which 
was required to activate any bonus payments
overall award no bonus is payable for 2014
  group underlying profit and cash flow after deduction of the cost of bonus and excludes the impact of acquisitions and disposals in the year and unbudgeted foreign exchange 
translation effects where material
the extent of this disclosure reflects the board’s view that apra profit and cash targets are commercially sensitive and this will be kept 
under review
deferred apra awards in march 2014 subject to audit
executive directors receive 40 of any annual bonus in deferred shares for 2013 apra the following deferred share awards were made in 
march 2014 ordinary shares held as deferred shares may receive a bonus issue of c shares during the deferral period
name
number
of shares
face 
value
£000
vesting
date
john rishton 33490 330 03032016
james guyette 16307 161 03032016
mark morris 15543 153 na
colin smith cbe 16000 158 03032016
 mark morris forfeited the above award when he left the company
apra 2015
the committee has determined that the bonus in respect of 2015 will be operated on similar terms to 2014 there will be no change to the 
maximum bonus opportunities for executive directors 
performance share plan psp timeline
the chart below provides an illustration of psp awards which are conditional share awards entitling senior executives to a number  
of shares determined by reference to corporate performance over a threeyear performance period psp awards are usually made  
in march of year 1 and released in march of year 4 subject to the performance criteria being met malus and clawback provisions apply
apra timeline
the chart below provides an illustration of the annual bonus resulting from performance in year 1 this is usually delivered in march of 
year 2 partially in cash and partially in deferred shares the deferred shares are held in trust for two years and are then released in march 
of year 4 subject to the recipient being still employed by the group malus and clawback provisions apply
bonus paid 60 cash and 
40 in deferred shares
deferred shares released
shares released subject to performance criteria targets set for period
grant of share awards
targets set for year
 for details of the share retention policy see page 82
directors’ remuneration report
continued
deferred shares held performance year
performance period
50 aftertax shares continue to be held 
under share retention policy 
year 1 year 2 year 3
year 4 year 1 year 2 year 3
year 4 ongoing
directors’ report
rollsroyce holdings plc annual report 2014 78 longterm incentives – psp
the psp is designed to reward and incentivise selected senior executives who can influence the longterm performance of the group 
psp 2014 award targets subject to audit
the targets were as follows and straight line vesting will apply between these points
aggregate cash flow per share cps over the threeyear period  of maximum award released
less than 125p 0
125p 30
155p 100
psp awards made in march 2014
in 2014 executive directors received psp grants in line with the remuneration policy as follows
number 
of shares
awarded
 
 of 
salary
face 
value at
 maximum
 vesting
£000
minimum
  vesting 
as a  of
 maximum
performance
 period 
end date
john rishton 112768 120 1665 20 31122016
james guyette 51770 100 764 20 31122016
mark morris 51812 100 765 20 na
colin smith cbe 53336 100 788 20 31122016
  mark morris forfeited the above award when he left the company on 4 november 2014
all awards are made as performance shares based on a percentage of salary and the value is divided by the average share price over  
a threeday period which was 98433p before to the date of grant the face value is the maximum number of shares that would vest  
150 of the award multiplied by the share price at the date of grant if the eps or base cps targets are not achieved no shares vest
psp awards vesting in march 2015
the following sets out details in respect of the march 2012 psp award for which the final year of performance was the 2014 financial year 
targets for 2012 – 2014 period performance against targets
eps growth hurdle awards may vest if eps growth exceeds the oecd index  
of consumer prices awards will lapse if hurdle not met
eps growth of 16 over the threeyear period  
exceeded the hurdle which was 5
aggregate cps 
100 of award
aggregate cps over threeyear period of less than 56p – zero vesting
aggregate cps over threeyear period of 56p – 30 vesting
aggregate cps over threeyear period of 83p – 100 vesting
straightline vesting between these points
aggregate cps performance over three years  
of 63p
49 vesting 
tsr performance
multiplier of up to 50
tsr below median of ftse 100 – no additional vesting
tsr above median of ftse 100 – 25 increase
tsr at upper quartile of ftse 100 – 50 increase
straightline basis between these points
tsr performance was 39th best amongst the  
ftse 100
37 increase
total 67 of shares will vest during march 2015
psp awards to be made in march 2015
the performance targets in respect of the 2015 to 2017 performance period under the aggregate cps measure will be as follows
aggregate cps over the threeyear period  of maximum award released
less than 60p 0
60p 30
100p 100
cps is calculated as reported cash flow before the cost of business acquisitions or proceeds of disposals foreign exchange translation 
effects special payments into pension schemes and payments to shareholders divided by the weighted average number of shares in issue
cps is cumulative over a threeyear period
directors’ report
79 directors’ remuneration report
continued
we believe that the combination of eps cps and tsr targets are challenging and that the performance necessary to achieve awards 
towards the upper end of the range is stretching they should not therefore be interpreted as providing guidance on the group’s 
performance over the relevant period
executive directors’ service contracts
the table below summarises the notice periods contained in the executive directors’ service contracts
date of 
contract
notice 
period
company
notice 
period
individual
john rishton 10 mar 2011 12 months 6 months
james guyette 29 sep 1997 30 days 30 days
colin smith cbe 1 july 2005 12 months 6 months
david smith 19 nov 2014 12 months 6 months
nonexecutive directors’ letters of appointment
the chairman and nonexecutive directors have letters of appointment rather than service contracts
appointment date
current letter 
of appointment 
end date
ian davis 1 mar 2013 29 feb 2016
dame helen alexander 1 sep 2007 31 aug 2016
lewis booth cbe 25 may 2011 24 may 2017
ruth cairnie 1 sep 2014 31 aug 2017
sir frank chapman 10 nov 2011 9 nov 2017
warren east cbe 1 jan 2014 31 dec 2016
lee hsien yang 1 jan 2014 31 dec 2016
john mcadam 19 jan 2008 18 feb 2017
john neill cbe 13 nov 2008 12 nov 2015
jasmin staiblin 21 may 2012 20 may 2015
payments to past directors not subject to audit
dr mike howse retired from the board on 30 june 2005 following his retirement he has continued to be retained by the company for his 
expertise in engineering and was paid £27720 in 2014 2013 £23310
loss of office payments subject to audit
mark morris left the company on 4 november 2014 it was agreed to pay him 12 months’ salary and benefits in equal monthly payments 
in lieu of his notice period totalling £717150 gross base salary £510000 and benefits comprising a cash payment in respect of pension  
of £163200 and other benefits of £43950 which included car and fuel allowance tax planning medical and life insurance and a payment 
for unused leave of £15632 the total paid to him after leaving the company up to 31 december 2014 was £133443 which includes the 
unused leave payment the contractual payments were made in accordance with his service agreement he received his 2013 apra 
deferred shares of 18591 shares in accordance with the rules of the plan his 2014 apra deferred shares and his sharesave option lapsed 
and he forfeited his psp awards he was offered up to £48000 including vat in respect of career transition support which the company 
will pay no further payments were made to mark morris in respect of his loss of office if he commences alternative employment within 
12 months following his departure the committee will consider reducing the amount due to be paid
external directorships 
the directors retained the payments detailed below from serving on the boards of these companies
directorships held 
payments
received
£000
john rishton
1
unilever plc and unilever nv 86
james guyette
23
privatebancorp inc and pricelinecom 135
david smith motability operations group plc 43
1 
john rishton’s fee was partly paid in euros translated at £1  eur 124
2  
james guyette received 1881 restricted stock units rsus at us2659 per share in privatebank and 187 rsus at us133824 per share in pricelinecom in addition to his annual fees 
3 
james guyette was paid in us dollars translated at £1us16477
directors’ report
rollsroyce holdings plc annual report 2014 80 nonexecutive directors’ fees paid
the chairman and nonexecutive directors are not eligible to participate in any of the group’s share schemes incentive arrangements  
or pension schemes a facility is in place which enables nonexecutive directors to use some or all of their fees after the appropriate 
statutory deductions to make market purchases of shares in the company on a monthly basis the base fees were increased with  
effect from 1 may 2014 following shareholder approval
nonexecutive directors’ base fees
2014
£000
2013
£000
chairman 425 425
other nonexecutive directors 70 60
chairman of audit committee 25 20
chairman of safety and ethics committee 20 15
chairman of remuneration committee 20 15
senior independent director 15 12
the chairman of the science and technology committee will be paid £20000 with effect from 1 january 2015
pension entitlements subject to audit 
the group’s uk pension schemes are funded registered schemes and were approved under the regime applying until 6 april 2006 
they include both defined contribution and defined benefit schemes normal retirement age for the defined benefit schemes is 62
john rishton is a member of one of the group’s uk defined contribution pension schemes and received employer contributions restricted 
to the annual allowance limits with any excess paid as a cash allowance the cash allowance is calculated as equivalent to the cost of the 
pension contributions allowing for national insurance costs
mark morris who left the company on 4 november 2014 had opted out of future pension accrual with effect from 16 august 2012  
and received a cash allowance in lieu of future pension accrual
colin smith cbe opted out of future pension accrual with effect from 1 april 2006 and receives a cash allowance in lieu of future  
pension accrual
david smith receives a cash allowance in lieu of a defined contribution pension
james guyette participates in pension plans sponsored by rollsroyce north america inc he is a member of two defined benefit plans in 
the us one qualified and one nonqualified he accrues a retirement lump sum benefit in both of these plans in addition james guyette  
is a member of two 401k savings plans in the us one qualified and one nonqualified to which both he and his employer rollsroyce 
north america inc contribute he is also a member of an unfunded nonqualified deferred compensation plan in the us to which his 
employer makes notional contributions under the defined benefit plans 65 was the earliest age at which benefits could have been taken 
without consent and without actuarial reduction 
details of the defined benefits of the executive directors as at 31 december 2014 in the group’s uk and us pensions schemes are given 
below 
total accrued annual pension
 entitlement at 
31 december 2014 
£000
mark morris 172
colin smith 393
 the accrued pension for mark morris is as at 4 november 2014 when he left the company
total accrued retirement lump
 sum entitlement at 
 31 december 2014 
£000
james guyette
1
1380
1 
benefits are translated at £1  us15877 2013 us16542
directors’ report
81 directors’ remuneration report
continued
details of defined contribution pension contributions paid by the group on behalf of the following executive directors are given below
2014
£000
2013
£000
john rishton 42 50
james guyette
1
349 395
1
  benefits are translated at £1us16477 2013 us1565
share retention policy subject to audit
we believe it is important that the interests of the executive directors should be closely aligned with those of shareholders the deferred 
apra award and the psp provide considerable alignment however participants in the psp are also required to retain at least one half of 
the number of aftertax shares released from the psp  until the value of their shareholding reaches the percentage of salary shown in the 
table below when this level is reached it must be maintained until retirement or departure from the group the executive director’s total 
shareholding for the purposes of comparing it with the minimum shareholding requirement includes shares held by their connected 
persons in the sip and psp shares that have vested but does not include unvested psp awards the shareholding requirement increased in 
2014 to 250 of salary for the chief executive and 200 of salary for the other executive directors apra deferred shares do not count 
towards their minimum shareholding requirement 
except for david smith who was appointed on 4 november 2014 and has not had an opportunity to build up his shareholding the 
executive directors each complied with the 2014 minimum shareholding requirement as detailed in the table below 
base salary
£000
total
 shareholding
minimum
 shareholding
 requirement
as  of salary
minimum
 shareholding
requirement 
1
actual
 shareholding as
  of minimum
 requirement
john rishton 925 411061 250 234931 175
james guyette
 2
529 384898 200 107484 358
colin smith cbe 525 202369 200 106671 190
david smith 510 116 200 103623 011
1
 salary divided by the march 2014 psp grant price of 98433p multiplied by percentage of salary
2
 translated at £1  us15877
directors’ interests in shares subject to audit
the directors and their connected persons had the following interests in the ordinary shares and c shares
1
 of the company at 31 december 
2014 or at date of leaving or retirement if earlier are shown in the table below 
unvested awards vested awards
 ordinary 
shares
 
c shares
conditional
 shares not
 subject to
 performance
 conditions
 apra
conditional
shares 
subject to
performance
conditions 
psp
options over
 shares subject
 to savings
 contracts
 sharesave
vested shares
 and options 
exercised 
in year
executive directors
john rishton 411061 – 81740 354621 1745 388459
james guyette 384863 – 42077 167869 – 152824
mark morris left on 4 november 2014 82736 – 33600 161549 541 37674
colin smith cbe
 
202369 – 39207 167627 – 140216
david smith appointed 1 november 2014 116 – – 18287 – –
chairman and nonexecutive directors
ian davis
 
19027 – – – – –
dame helen alexander 3566 – – – – –
lewis booth cbe 30000 1675000 – – – –
ruth cairnie appointed 1 september 2014 4540 – – – – –
sir frank chapman 9137 1515481 – – – –
iain conn retired 1 may 2014 28401 11178 – – – –
warren east cbe 999 – – – – –
lee hsien yang
 
702 – – – – –
dr john mcadam 2452 – – – – –
john neill cbe 44919 – – – – –
jasmin staiblin – – – – – –
1
 noncumulative redeemable preference shares of 01p each 
directors’ report
rollsroyce holdings plc annual report 2014 82 changes in interests subject to audit
ordinary shares c shares
31 december 2014
changes from
31 december 2014 to
12 february 2015 31 december 2014
changes from
31 december 2014 to
12 february 2015
executive directors
john rishton 411061 4255 – –
james guyette 384863 3983 – –
colin smith cbe 202369 2053 – –
david smith 116 17 – –
chairman and nonexecutive directors
ian davis 19027 641 – –
dame helen alexander 3566 236 – –
lewis booth cbe 30000 – 1675000 1675000
ruth cairnie 4540 443 – –
sir frank chapman 9137 900 1515481 741960
warren east cbe 999 – – –
lee hsien yang 702 229 – –
dr john mcadam 2452 54 – –
john neill cbe 44919 723 – –
directors’ interests in unvested and vested awards
john rishton
31 december
 2013
granted 
during year
tsr uplift 
dividend
 enhancement
vested
awards
31 december
 2014
market price at
date of award 
p
date 
of grant
date 
of vesting
market price 
at vesting 
p
psp 2011 164866 – 82433 247299 – 60150 09032011 09032014 101581
psp 2012 133383 –  –  – 133383 80970 01032012 01032015 –
psp 2013 108470 – –  – 108470 102333 01032013 01032016 –
psp 2014 – 112768 – – 112768 98433 07052014 03032017 –
406719 112768 82433 247299 354621
performance related shares 63397 –  31699  95096 – 60150 09032011 01032014 101581
performance related shares 40565 –  –  – 40565 60150 09032011 01032015 –
103962 – 31699 95096 40565
apra 2011 44400 – 1664 46064 – 80880 01032012 01032014 101581
apra 2012 48250  – –  – 48250 102333 01032013 01032015 –
apra 2013 – 33490 – – 33490 98440 07052014 03032016 –
92650 33490 1664 46064 81740
sharesave options 1450 – – – 1450 52500 01022012 01022017 –
sharesave options – 295 – – 295 96160 01022014 01022017 –
  for sharesave the share price shown is the exercise price which was 85 of the market price at the date of the award the performance related shares were awarded as part of a special 
grant of shares to john rishton on joining the company and were intended to mirror the fair value and vesting profile of incentives he forfeited on leaving his previous employer
james guyette
 
31 december
 2013
granted 
during year
tsr uplift
dividend
 enhancement
vested 
awards
31 december
 2014
market price at 
date of award
 p
date 
of grant
date 
of vesting
market price 
at vesting 
p
psp 2011 82404 – 41204 123608 – 60150 09032011 09032014 101581
psp 2012 64385 – – – 64385 80970 01032012 01032015 –
psp 2013 51714 – – – 51714 102333 01032013 01032016 –
psp 2014 – 51770 – – 51770 98433 07052014 03032017 –
198503 51770 41204 123608 167869
apra 2011 28161 – 1055 29216 – 80880 01032012 01032014 101581
apra 2012 25770 – – – 25770 102333 01032013 01032015 –
apra 2013 – 16307 – – 16307 98440 07052014 03032016 –
53931 16307 1055 29216 42077
directors’ report
83 directors’ remuneration report
continued
mark morris
31 december
 2013
granted 
during year
tsr uplift 
dividend
 enhancement
vested
awards
4 november
 2014
1
market price at
date of award 
p
date 
of grant
date 
of vesting
market price 
at vesting 
p
psp 2011 25039 – 6260 31299 – 60150 09032011 09032014 101581
psp 2012 59899 –  –  – 59899 80970 01032012 na –
psp 2013 49838 – –  – 49838 102333 01032013 na –
psp 2014 – 51812 – – 51812 98433 07052014 na –
134776 51812 6260 31299 161549
apra 2011 6145 – 230 6375 – 80880 01032012 01032014 101581
apra 2012 18057 – –  – 18057 102333 01032013 01032015 –
apra 2013 – 15543 – – 15543 98440 07052014 na –
24202 15543 230 6375 33600
sharesave options 541 – – – 541 52500 01022012 na –
 the tsr uplift applied was 25 of the original grant 
1
 all the above awards except the apra 2012 granted in 2013 were forfeited on leaving the company 
colin smith cbe
31 december
 2013
granted 
during year
tsr uplift
dividend
 enhancement
vested
awards
31 december
 2014
market price 
at date 
of award
 p
date 
of grant
date 
of vesting
market price
 at vesting
p
psp 2011 74813 – 37407 112220 – 60150 09032011 09032014 101581
psp 2012 62987 – – – 62987 80970 01032012 01032015 –
psp 2013 51304 – – – 51304 102333 01032013 01032016 –
psp 2014 – 53336 – – 53336 98433 07052014 03032017 –
189104 53336 37407 112220 167627
apra 2011 26985 – 1011 27996 – 80880 01032012 01032014 101581
apra 2012 23207 – – – 23207 102333 01032013 01032015 –
apra 2013 – 16000 – – 16000 98440 07052014 03032016 –
50192 16000 1011 27996 39207
david smith 
4 november
 2014
granted 
during year
tsr uplift at
 vesting
dividend
 enhancement
vested
awards
31 december
 2014
market price 
at date 
of award
 p
date 
of grant
date 
of vesting
market price
 at vesting
p
psp 2014 18287 – – – 18287 98433 03032014 03032017 –
chief executive pay tsr and allemployee pay
this section of the report enables our remuneration arrangements to be seen in context by providing
• a fiveyear history of our chief executive’s remuneration 
• our tsr performance over the same period 
• a comparison of the yearonyear change in our chief executive’s remuneration with the change in average remuneration across the group and 
• a yearonyear comparison of the total amount spent on employment costs across the group and shareholder payments
chief executive pay
year chief executive
 1 2
single figure of total 
remuneration
£000
annual bonus
 as a  of
 maximum
psp
 as a  of 
 maximum
2014 john rishton 2386 – 45
2013 john rishton 6228 55 100
2012 john rishton 4577 85 –
2011 john rishton 3677 63 –
2011 sir john rose 3832 – 75
2010 sir john rose 3914 100 100
1
 on 31 march 2011 sir john rose retired as chief executive and john rishton was appointed
2
  the remuneration for sir john rose does not include any pension accrual or contribution as he was receiving his pension from 1 february 2008 john rishton received a special grant  
of shares on joining the company on 1 march 2011 to mirror the shares he forfeited on resigning from his previous employer the share price has increased from 48350p at the time  
this grant was made to 870p at the end of 2014 these are the main reasons why john rishton’s remuneration in 2012 and 2013 exceeds that of his predecessor
directors’ report
rollsroyce holdings plc annual report 2014 84 rollsroyce holdings plc annual report 2014
tsr performance
the company’s tsr performance over the previous six years 
compared to a broad equity market index is shown in the graph 
below the ftse 100 has been chosen as the comparator because  
it contains a broad range of other uk listed companies
the graph shows the growth in value of a hypothetical £100 holding 
in the company’s ordinary shares over six years relative to the  
ftse 100 index the values of the hypothetical £100 holdings at the 
end of the sixyear period were £30223 and £18440 respectively
rollsroyce – six year rebased tsr
  rollsroyce holdings plc             ftse 100
2008 2009 2010 2011 2012 2013 2014
100
150
200
250
300
350
400
450
percentage change in chief executive remuneration
the following table compares the percentage change in the chief 
executive’s salary bonus and benefits to the average percentage 
change in salary bonus and benefits for all uk employees from  
2013 to 2014 
salary benefits
annual
 bonus
chief executive 0 21 100
uk employees average 3 01 985
uk employees were chosen as a comparator group in order to  
avoid the impact of exchange rate movements over the year  
uk employees make up approximately 45 of the total  
employee population
relative spend on pay
the following chart sets out the percentage change in payments  
to shareholders and overall expenditure on pay across the group
payments to shareholders 
note 17 – nancial statements
2014
2013
£414m 13
£366m
group employment costs
note 7 – nancial statements
2014
2013
£3357m 10
£3717m
statement of shareholder voting
 for against votes withheld 
approval of 2013 remuneration report
percentage of votes  9416 584
number of votes cast 1242179846 77016965 14049941
we monitor carefully shareholder voting on our remuneration 
policy and implementation we recognise the importance of 
ensuring that our shareholders continue to support our 
remuneration arrangements
advisers to the committee
during the year the committee had access to advice from deloitte 
llp’s executive compensation advisory practice total fees for  
advice provided to the committee during the year by deloitte  
were £81432 deloitte also advised the company on tax assurance 
pensions and corporate finance and deloitte mcs limited provides 
consulting services 
deloitte is a founding member of the remuneration consultants 
group and adheres to its code in relation to executive remuneration 
consulting the committee requests deloitte to attend meetings 
periodically during the year the committee is satisfied that the 
advice it has received has been objective and independent
statutory requirements
the directors’ remuneration report has been prepared on behalf  
of the board by the remuneration committee
we adopt the principles of good governance as set out in the  
uk corporate governance code 2012 and comply with the 
regulations contained in the schedule 8 of the large and medium
sized companies and groups accounts and reports amendment 
regulations 2013 the listing rules of the financial conduct 
authority and the relevant schedules of the companies act 2006
the companies act 2006 and the listing rules require the 
company’s auditor to report on the audited information in their 
report on page 159 and to state that this section has been properly 
prepared in accordance with these regulations the directors’ 
remuneration report is subject to shareholder approval at the  
agm on 8 may 2015
the directors’ remuneration report was approved by the board  
on 12 february 2015 and signed on its behalf
dame helen alexander 
chairman of the remuneration committee
directors’ report
85 directors’ remuneration policy
the policy was approved by shareholders at the 2014 agm and  
is reproduced here for information only
remuneration policy framework
the group is committed to achieving sustained improvements  
in performance and this depends crucially on the individual 
contributions made by the executive team and by employees  
at all levels the board believes that an effective remuneration 
strategy plays an essential part in the future success of the group
accordingly the remuneration policy will continue to reflect the 
following broad principles
• the remuneration of executive directors and other senior 
executives should reflect their responsibilities and contain 
incentives to deliver the group’s performance objectives  
without encouraging excessive risk taking
• remuneration must be capable of attracting and retaining  
the individuals necessary for business success
• remuneration policy must be sufficiently flexible to take  
account of changes in the group’s business environment  
and market practices
• total remuneration should be based on group and individual 
performance both in the short and long term
• the system of remuneration should establish a close identity of 
interest between senior executives and shareholders through 
measures such as encouraging the senior executives to acquire 
shares in the company therefore a significant proportion of 
senior executive remuneration will comprise sharebased 
longterm incentives and
• when determining remuneration the committee will take into 
account pay and employment conditions elsewhere in the group
policy report
the policy became effective from 1 may 2014
executive directors’ remuneration policy
element
purpose and link 
to strategy operation maximum opportunity performance measures
salary it is essential that the 
company provides 
competitive salaries 
suitable to attract and 
retain individuals of  
the right calibre to 
develop and execute  
the business strategy 
salary levels are set using careful judgement 
taking into account the scope of the role and 
responsibilities performance experience 
potential retention issues and salaries 
elsewhere in the group judgement will be 
informed but not led by reference to 
companies of a similar size complexity and 
internationality
salaries are reviewed annually and normally 
fixed for 12 months from 1 march each year 
however salary increases are not automatic 
exceptionally salaries may be increased on 
other dates in the year 
executive directors may be appointed at 
salaries below the target level to enable pay 
progression commensurate with growth  
in the new role 
annual salary increases will not normally 
exceed average increases for employees 
in other appropriate parts of the group 
on occasion increases may be larger 
where the committee considers this to be 
necessary circumstances where this may 
apply include growth into a role to 
reflect a change in scope of role and 
responsibilities where market conditions 
indicate a level of under competitiveness 
and the committee judges that there is a 
risk in relation to attracting or retaining 
executives
where the committee exercises its 
discretion to award increases above the 
average for other employees the 
resulting salary will not exceed the 
competitive market range
none although individual 
performance is the primary 
consideration in setting salary 
alongside overall company 
affordability and market 
competitiveness 
directors’ report
rollsroyce holdings plc annual report 2014 86 executive directors’ remuneration policy
element
purpose and link 
to strategy operation maximum opportunity performance measures
benefits to provide market 
competitive benefits 
sufficient to recruit and 
retain and to support  
the executive to give 
maximum attention  
to their role
benefits provided include a car or car 
allowance contribution to the cost of fuel use 
of a driver financial planning assistance life 
assurance and medical insurance other 
appropriate benefits may be provided from 
timetotime at the discretion of the 
committee
certain benefits such as accommodation or 
use of a driver are to enable an executive to 
devote maximum time and attention to their 
role club membership fees may also be 
provided the group may pay any tax due on 
these benefits
the group offers relocation for executives  
to be located within reasonable reach of their 
place of work where relocation is not practical 
or a preferred option or where work is mainly 
split between two locations support for 
accommodation and travel may be provided
relocation support may include items such  
as transaction and legal fees removals 
disturbance allowance and temporary travel 
and subsistence costs international relocation 
support may include items such as school fees 
tax equalisation and home visits
benefits will be market competitive 
taking into account the role and the  
local market
benefits excluding any accommodation 
relocation and associated tax costs will 
not exceed £100000 per annum 
the value of benefits provided for 
international and domestic relocation 
and any ongoing accommodation and 
travel support will be appropriate to  
the individual circumstances of the 
executive and only expenses that the 
committee considers necessary and 
appropriate will be supported
none
pension to provide market
competitive pensions 
sufficient to recruit and 
retain
new executives to the company are offered 
membership of a defined contribution pension 
plan pension contributions are based on base 
salary only
there are a number of legacy pension 
arrangements including defined benefit plans 
which were in place before 27 june 2012 and 
have not been changed since commitments to 
these arrangements will be honoured 
executives may opt to receive a cash allowance 
in lieu of pension
the maximum employer contribution to 
defined contribution pension 
arrangements is 38 of base salary 
under the group’s legacy defined benefit 
arrangements the pension due is the 
higher of a pension based on the 
executive’s final salary with a maximum 
annual accrual rate of 25 or based on 
career average salary with a maximum 
annual accrual rate of 33 the resulting 
pension is limited so that the maximum 
pension at normal retirement age is two 
thirds of the executive’s final 
remuneration the benefits under these 
arrangements include a lump sum 
payable on death in service and pensions 
for surviving spouses civil partners and 
certain dependants 
executives may opt to receive a cash 
allowance in lieu of pension the cash 
allowance is calculated to be equivalent 
to the employer’s defined contribution 
pension contributions reduced to allow 
for the additional national insurance 
cost incurred by the employer
james guyette participates in qualified 
and nonqualified defined benefit and 
defined contribution pension 
arrangements in the us under these 
various arrangements combined it is 
expected that the benefits provided by 
the company will be equivalent in value 
to a pension of two thirds of salary with 
post retirement increases similar to 
those required by statute in the uk 
none
directors’ report
87 executive directors’ remuneration policy
element
purpose and link 
to strategy operation maximum opportunity performance measures
annual bonus to incentivise and reward 
execution of the business 
strategy delivery of 
financial performance 
targets and achievement 
of personal objectives
compulsory deferral of 
part of any bonus 
encourages retention  
and provides alignment 
with shareholders
the committee sets group financial targets and 
agrees personal objectives for each executive 
director at the start of the financial year at the 
end of the year business performance 
determines the company bonus payout level 
and the committee considers whether any 
adjustment to the payout level is appropriate 
each executive director’s bonus is also 
dependent on the achievement of their 
personal objectives and wider contribution to 
the group the committee may apply an uplift 
of up to 20 or a reduction potentially to zero 
as appropriate
a portion of the bonus paid in a range 30 to 
50 is compulsorily deferred into the 
company’s shares for a period of two years and 
is subject to continued employment with early 
release in certain circumstances there are no 
further performance conditions 
deferred shares may receive a bonus issue  
of c shares or equivalent during the  
deferral period 
the bonus plan is noncontractual and may be 
offered on a yearbyyear basis the committee 
has the right to apply the malus provision on an 
individual or group basis and amend or 
withdraw the bonus before payment from 
2014 the same right over deferred shares will 
apply as will the right to clawback bonuses paid 
or vested shares on an individual basis if it can 
be demonstrated that individuals have acted  
in an improper manner malus andor clawback 
provisions may apply in exceptional cases such 
as material misstatement of results a material 
failure of risk management serious 
reputational damage serious individual 
wrongdoing such as noncompliance with  
the company’s code of conduct or gross 
misconduct 
the current maximum annual bonus 
linked to business performance is 135 
of salary for the chief executive and 
125 for other executive directors this  
is based on achieving the highest targets 
set for business performance however 
the committee may adjust the bonus  
to reflect personal performance as 
described in the previous column giving 
an overall maximum of 162 and 150 
respectively
the committee has the discretion  
to increase the overall maximum bonus 
level to 200 of salary for the chief 
executive and 175 for other executive 
directors subject to this not being above 
the competitive market range
the bonus payout level is determined 
primarily by group financial 
performance but the committee may 
introduce nonfinancial metrics and
or adjust the payout level to reflect 
other factors as appropriate the final 
bonus awarded to each director is 
also linked to their personal 
performance
any nonfinancial metrics used in  
the annual bonus plan will be linked 
to the group’s strategy and will not 
be weighted more than 50 of the 
whole bonus a principle applies that 
no bonus is payable unless the base 
financial targets are achieved and 
this also applies if nonfinancial 
measures are introduced
based on the current bonus 
opportunity
chief executive bonus generated  
by business performance is 40 of 
salary for achieving the base level 
targets and 135 of salary for 
achieving the highest level of targets 
bonus may then be adjusted for 
personal performance in a range 
0120 at committee discretion  
with 100 typically applying for  
good performance and a 20  
uplift available for outstanding 
personal performance
other executive directors bonus 
generated by business performance 
is 37 of salary for achieving the base 
level targets and 125 of salary for 
achieving the highest level of targets 
bonus may then be adjusted for 
personal performance as above
directors’ remuneration policy
continued
directors’ report
rollsroyce holdings plc annual report 2014 88 executive directors’ remuneration policy
element
purpose and link 
to strategy operation maximum opportunity performance measures
performance 
share plan 
psp
post 2014 agm 
onwards
to incentivise and  
reward development  
and execution of the 
business strategy over  
the longer term
the plan provides 
alignment with 
shareholder interests 
through the performance 
measures chosen and  
a retention element 
through the plan 
timescale 
a shareholding 
requirement is linked  
to the psp in order to 
further provide alignment 
with shareholders 
the link between the 
performance measures 
and the company’s 
strategy is explained  
in the notes to this table 
on page 90
executive directors are granted awards over 
shares annually at the start of a threeyear 
performance period the proportion of those 
awards that vest is determined at the end  
of the period according to a set of company 
performance measures
vesting of awards is subject to continued 
employment until vesting date with the 
exception of certain leaver circumstances  
in which case vesting is subject to company 
performance and prorating for service
the plan rules contain malus and clawback 
provisions the committee has the right to 
amend and withdraw share grants before 
vesting for individuals and groups and the right 
to reclaim vested shares or their proceeds from 
individuals where it has been demonstrated 
that they acted in an improper manner 
situations where the provisions will apply are 
as described in the bonus section on page 88 
executive directors are required to hold a level 
of shareholding
the chief executive is granted awards 
each year over shares to the value of 
120 of salary other executive directors 
are granted 100 of salary subject to the 
earnings per share eps condition being 
met these shares vest at the end of the 
performance period if the company has 
achieved the maximum target set for 
cash flow per share cps the number  
of shares vesting can be increased  
by 25 for above median tsr ranking 
rising to 50 increase for upper quartile 
tsr ranking
maximum face values of annual awards 
are therefore 180 of salary for the chief 
executive and 150 of salary for other 
executive directors
 
the three corporate performance 
measures are
1 eps – condition the increase in eps 
over the threeyear period must 
exceed an appropriate index of 
consumer prices for the same period 
if this condition is not met share 
vesting is zero
2 cps – prime measure the 
aggregate cps over the performance 
period will determine the number  
of shares which vest achieving a base 
target of cps will result in 30 of the 
shares vesting and achieving a 
maximum cps target will cause 
100 of the shares to vest the 
number of shares which may vest is 
determined on a straightline basis 
between the 30 and 100 level
3 total shareholder return tsr 
relative to ftse 100 or other 
appropriate index the number of 
shares vesting will be increased by 
25 if the company’s tsr is ranked 
above the median of the ftse 100  
or other appropriate index over the 
same periods and by 50 if ranked  
at or above the upper quartile  
of the same group intermediate  
tsr ranking will increase the  
number of shares released on  
a straightline basis
performance 
share plan 
psp
legacy awards 
– 2004 plan
the purpose of the  
2004 share plan is fully 
consistent with the 
purpose of the 2014  
plan described above
the operation of the 2004 plan is as  
described above with the exception  
of malus and clawback elements which  
will apply for 2014 grants
as above as above
sharesave plan this savingsrelated share 
option plan provides all 
employees worldwide an 
interest in the 
performance of 
rollsroyce shares
executive directors may participate on the 
same terms as other employees the option 
price may be discounted by up to 20
accumulated savings may be used to exercise 
an option to acquire shares 
the maximum savings amount is 
currently £250 per month over a three or 
fiveyear period this may be increased in 
accordance with changes to uk 
legislation
no performance measures are 
permitted by uk legislation 
applicable to this type of plan
share 
incentive 
plan sip
uk employees may elect 
to receive part of any 
annual bonus in shares 
uk employees may elect 
to make regular monthly 
purchases of shares from 
pretax income
ukbased executive directors may participate 
on the same terms as all other uk employees 
shares held in the sip for five years will vest free 
from income tax and national insurance 
contributions
currently up to £3000 of the  
annual cash bonus can be applied  
to purchase shares
the maximum monthly amount of  
£125 may be used to purchase shares
the above limits may be increased  
in accordance with changes to  
uk legislation
the award of any bonus will depend 
on performance conditions  
see page 88 but no further 
conditions apply once the employee 
elects to participate in the sip
directors’ report
89 nonexecutive directors’ remuneration policy
element
purpose and link 
to strategy operation maximum opportunity performance measures
fees to reward individuals  
for fulfilling the relevant 
role and to attract 
individuals of the skills 
and calibre required
the committee makes recommendations  
to the board on the remuneration of the 
chairman the chairman and the executive 
directors determine the remuneration for  
the nonexecutive directors the level of 
remuneration is set within a limit approved 
from timetotime by shareholders
the chairman is paid a single consolidated  
fee other nonexecutive directors are paid  
a base fee covering board and committee 
membership committee chairmen and  
the senior independent director receive  
an additional fee 
the articles of association require the 
company to set a maximum ceiling on 
the total remuneration payable to 
nonexecutive directors including the 
nonexecutive chairman a resolution to 
increase this to £1400000 was proposed 
at the 2014 agm 
fees are set at a level appropriate for the 
role and are reviewed regularly taking 
into account fees payable to non
executive directors of companies  
of a similar size and complexity
none
benefits to devote maximum time 
and attention to the 
requirements of the role
the chairman has occasional use of  
chauffeur services 
travel hotel and subsistence expenses 
incurred in attending board meetings and 
committee meetings or otherwise required  
to attend the company’s offices are 
reimbursed by the company the group  
may pay any tax due on such benefits
where a nonexecutive director is based 
outside the uk and has to file a uk tax  
return the company may pay towards  
tax advice and filing
the maximum value for chauffeur 
services will not exceed £25000  
per annum 
the maximum contribution towards tax 
advice and filing is £5000 per annum
none
performance measures and targets
the annual bonus measures are primarily based on group financial 
performance but may contain nonfinancial measures as detailed  
in the above table 
the committee will set the group financial targets with reference  
to the prior year and to the budgets and business plans for the 
coming year ensuring the levels to achieve base ontarget and 
maximum bonus payout are appropriately challenging
the psp performance measures set out in the policy table support 
the group’s strategy as follows
• the eps growth hurdle ensures any payout is supported by 
sound profitability
• the aggregate cps measure incentivises the generation of cash 
flow in line with the group’s strategy this measure is set in line 
with the principles described for the annual bonus and
• the tsr performance measure aligns interests with shareholders 
by rewarding tsr outperformance the tsr is measured  
with reference to constituents of an appropriate index such  
as the ftse 100
in accordance with the rules of the psp  the performance conditions 
may be replaced or varied if an event occurs or circumstances arise 
which cause the committee to determine that the performance 
conditions have ceased to be appropriate if the performance 
conditions are varied or replaced the amended performance 
conditions must in the opinion of the committee be fair 
reasonable and materially no more or less difficult than the original 
condition when set
shareholders’ views 
this statement of remuneration policy is largely a consolidation of 
policies which have enjoyed the support of shareholders for many 
years we considered the guidance provided by the gc 100 and 
shareholder advisory groups in preparing this policy and have 
followed this insofar as it is appropriate in the context of our 
business prior to finalising the policy we shared it with a selection 
of major shareholders looking ahead we welcome an open 
dialogue with shareholders and intend to continue to consult with 
major shareholders before implementing any significant change
group employee considerations 
when setting remuneration for executive directors the committee 
takes into account contextual information about pay and 
conditions within the group including the following
• salary increases for the allemployee population
• bonus awards for the allemployee population and
• pay ratios between executive directors and other employees
directors’ remuneration policy
continued
directors’ report
rollsroyce holdings plc annual report 2014 90 rollsroyce employs over 54000 people in more than 50 countries 
inevitably remuneration arrangements differ to reflect local 
markets but some common themes apply to employees at all 
levels worldwide
• we aim to offer competitive levels of remuneration benefits  
and incentives to attract and retain employees
• all employees participate in bonus arrangements where the 
bonus is determined by the same financial measures as that 
applicable to executive directors and
• all employees have the opportunity to participate in a savings 
related share option plan
at more senior levels remuneration is increasingly long term and 
larger proportions are dependent on both group and individual 
performance and paid in the form of shares
given the scale of the employee population the committee 
considered that it would be impractical to consult all employees 
when drawing up the policy 
illustrations of remuneration policy application
the bar chart below illustrates projected executive remuneration 
for 2014 at four different levels of performance showing payments 
from minimum to maximum the table below the chart explains 
performance levels one to four and the associated remuneration 
colin smith
0
2000
1500
1000
500
2500
3000
3500
4000
4500
£000
1 2 3 4
71 100
10
13
77
25
24
51
•
20
21
59
34
29
37
30
25
45
salary plus pension and benets
potential value of bonus depending on the performance scenario
potential value of psp depending on the performance scenario
 salary values are as at 31 december 2013
john rishton
1 2 3 4
66
30
25 18
16
45 100
39
29
32
16
james guyette
1 2 3 4
100
11
13
76
20
22
58
30
25
45
remuneration achieved for key levels of performance are
1 minimum fixed remuneration only no bonus or psp paid
2 base level bonus and psp resulting from base level of business 
performance bonus at 30 of maximum payment assuming  
no adjustment for personal performance psp vesting at 30 of 
maximum from achieving base cps target with no tsr multiplier
3 ontarget bonus and psp resulting from performance in line with company 
expectations bonus at 60 of maximum assuming no 
adjustment for personal performance psp vesting midway 
between base and maximum levels with 25 tsr multiplier
4 maximum maximum annual bonus based on achieving the highest targets 
set for business performance and outstanding individual 
performance psp vesting from achieving maximum cps target 
and with maximum 50 tsr multiplier
service contracts
ukbased executive directors’ contracts include the 
following provisions
• 12 months’ notice of termination from rollsroyce
• 6 months’ notice of termination from the executive and 
• reimbursement of reasonable business expenses
the committee recognises that in the case of appointments  
to the board from outside the group it may be necessary to offer  
a longer initial notice period which would subsequently reduce  
to 12 months after that initial period
james guyette has a contract with rollsroyce north america inc 
drawn up under the laws of the state of virginia us this provides 
that on termination without cause he is entitled to 12 months’ 
severance pay without mitigation and in addition appropriate 
costs incurred in relocating household and personal effects the 
contract also provides for the payment of club membership fees 
and for tax and financial planning up to a maximum of us15000 
per annum and the group will gross up any amounts to cover  
any applicable taxes arising
all contracts also include the entitlement to paid holidays sick pay 
and other standard employee terms
the chairman and the nonexecutive directors have letters  
of appointment rather than service contracts no compensation  
is payable to the chairman or to any nonexecutive director  
if the appointment is terminated early or if they fail to be  
reelected at an agm
policy on exit payments
the notice period the company is required to give to executive 
directors under their contracts of employment is 12 months 
payment in lieu of notice will not exceed the value of 12 months’ 
salary benefits and pension contributions both mitigation and  
the staggering of payments through the notice period will be 
considered by the committee where appropriate as will the funding 
of reasonable outplacement and other professional fees should 
directors’ report
91 additional compensation matters arise such as a settlement or 
compromise agreement the committee will exercise judgement 
and will take into account the specific commercial circumstances
pension benefits on early retirement should be payable in 
accordance with the normal rules of the relevant pension plan 
under legacy uk defined benefit pension arrangements accrued 
pension is reduced to reflect early receipt in accordance with factors 
set by the trustees from timetotime and is limited to a maximum 
pension of two thirds of the executive’s final remuneration 
prorated by actual service to potential service
the committee has the discretion to preserve incentive awards 
prorated to service and to release deferred shares in exercising  
this discretion the committee will have regard to performance  
and the circumstances of leaving for deferred shares these are 
usually released in cases such as retirement death injury  
illhealth and redundancy
for psp  the rules state that unvested awards may be preserved at 
the committee’s discretion according to the circumstances in such 
cases vesting will be at the normal date subject to the established 
performance conditions and pro rata to employment in the 
performance period in cases such as death and terminal illness  
the committee also has the discretion to vest the awards 
immediately using an estimate of future outturn
the treatment of leavers in the company’s sharesave and sip plans 
is governed by the plan rules the uk rules are hmrc approved an 
executive director who has sharesave options who retires or who 
leaves the company through illhealth disability or redundancy will 
be entitled to exercise their options pro rata to the savings made 
within six months of leaving the company an executive director 
who leaves in any other manner such as dismissal would only be 
entitled to have their savings returned to them participants in the 
sip who leave the company for the same reasons listed above will 
have their shares released to them free of tax and national 
insurance contributions
in the event of a change of control of the company psp awards  
will vest based on the extent to which the committee determines 
the performance conditions have been or would have been met 
prorating for service in the performance period will apply deferred 
shares earned under apra would vest in full sharesave options 
would immediately be exercisable pro rata to savings made 
consideration received as shares would be held in the sip  if possible 
otherwise the consideration would be treated as a disposal from  
the sip
if awards are made on recruitment such as buyouts the  
treatment on leaving would be determined at the time at the 
committee’s discretion
policy on new appointments 
the committee will normally award newly appointed executive 
directors with a remuneration package which is consistent with  
the policy and principles as set out in this report base salary may  
be set at a level higher or lower than previous incumbents and  
in certain circumstances to facilitate the recruitment of individuals 
of the required calibre the committee may use its discretion to 
make individual additional incentive awards up to a maximum  
of 100 of annual salary incentive levels may also be increased by 
up to 30 of salary per annum for incentives commencing within 
two years of joining this level of discretion is considered 
appropriate given the current conservative market positioning  
of rollsroyce and our potential need to recruit from other market 
sectors or countries outside of the uk
in addition remuneration forfeited on resignation from a previous 
employer may be compensated the form of this compensation 
would be considered on a casebycase basis and may comprise 
either cash or shares generally 
• if such remuneration was in the form of shares compensation 
will be in the company’s shares
• if remuneration was subject to achievement of performance 
conditions compensation will be subject to rollsroyce 
performance conditions and
• the timing of any compensation will where practicable match  
the vesting schedule of the remuneration forfeited
a newly appointed executive director may be provided with 
reasonable relocation support as set out in the policy table internal 
appointments would receive a remuneration package that is 
consistent with the remuneration policy legacy terms and 
conditions would be honoured including pension entitlements  
and any outstanding incentive awards 
if an executive director is appointed following a merger  
or an acquisition of a company by rollsroyce of which the 
executive director was employed legacy terms and conditions  
may be honoured
legacy commitments
contractual commitments made before 27 june 2012 and before 
the policy came into effect will be honoured this will include grants 
made under the old psp arrangement which will vest subject to the 
performance criteria being achieved after the adoption of this 
policy as well as previous contractual provisions relating to the 
defined benefit pension scheme 
the committee may make minor amendments to the policy set  
out above for regulatory exchange control tax administrative 
purposes or to take account of a change in legislation without 
obtaining shareholder approval for that amendment
 
directors’ remuneration policy
continued
directors’ report
rollsroyce holdings plc annual report 2014 92 directors’ report
responsibility statements
responsibility statements 
statement of directors’ responsibilities in respect of  
the annual report and the financial statements
the directors as listed on pages 54 and 55 are responsible  
for preparing the annual report and the group and parent  
company financial statements in accordance with applicable  
law and regulations
company law requires the directors to prepare group and parent 
company financial statements for each financial year under that 
law they are required to prepare the group financial statements  
in accordance with ifrs as adopted by the eu and applicable law 
and have elected to prepare the parent company financial 
statements in accordance with uk accounting standards and 
applicable law
under company law the 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 parent company and  
of their profit or loss for that period
in preparing each of the group and parent company financial 
statements the directors are required to
• select suitable accounting policies and then apply them 
consistently
• make judgements and estimates that are reasonable and prudent
• for the group financial statements state whether they have been 
prepared in accordance with ifrss as adopted by the eu
• for the parent company financial statements state whether 
applicable uk accounting standards have been followed subject 
to any material departures disclosed and explained in the parent 
company financial statements and
• prepare the financial statements on the going concern basis 
unless it is inappropriate to presume that the group and the 
parent company will continue in business
the directors are responsible for keeping adequate accounting 
records that are sufficient to show and explain the parent and 
group’s transactions and disclose with reasonable accuracy at any 
time the financial position of the parent company and enable them 
to ensure that its financial statements comply with the companies 
act 2006 they have general responsibility for taking such steps as 
are reasonably open to them to safeguard the assets of the group 
and to prevent and detect fraud and other irregularities
under applicable law and regulations the directors are also 
responsible for preparing a directors’ report directors’ 
remuneration report and corporate governance statement  
that complies with that law and those regulations
the directors are responsible for the maintenance and integrity  
of the corporate and financial information included on the group’s 
website legislation in the uk governing the preparation and 
dissemination of financial statements may differ from legislation  
in other jurisdictions
responsibility statements under the disclosure and 
transparency rules 
each of the persons who is a director at the date of approval of this 
report confirms that to the best of his or her knowledge
i  each of the group and parent company financial statements 
prepared in accordance with ifrs and uk accounting standards 
respectively gives a true and fair view of the assets liabilities 
financial position and profit or loss of the company and the 
undertakings included in the consolidation taken as a whole 
ii  the strategic report on pages 1 to 53 and directors’ report on 
pages 54 to 92 and pages 162 to 165 includes a fair review of the 
development and performance of the business and the position 
of the company and the undertakings included in the 
consolidation taken as a whole together with a description  
of the principal risks and uncertainties that they face and
iii  the annual report taken as a whole is fair balanced and 
understandable and provides the information necessary for 
shareholders to assess the company’s position and performance 
business model and strategy
by order of the board
pamela coles
company secretary
12 february 2015
93 rollsroyce holdings plc annual report 2014
company balance sheet 149
reconciliation of movements in shareholders’ funds 149 
notes to the company financial statements 150
note
1 accounting policies 150
2 investments – subsidiary undertakings 150
3 financial liabilities 150
4 share capital 151
5 movements in capital and reserves 151
6 contingent liabilities 151
7 other information 151
company financial statements
consolidated income statement 95
consolidated statement of comprehensive income 96 
consolidated balance sheet 97
consolidated cash flow statement 98 
consolidated statement of changes in equity 100 
notes to the consolidated financial statements 101
note
1 accounting policies 101
2 segmental analysis 110
3 research and development and other income 115
4 net financing 115
5 taxation 116
6 earnings per ordinary share 118
7 employee information 119
8 auditors’ remuneration 119
9 intangible assets 120
10 property plant and equipment 122
11 investments 123
12 inventories 127
13 trade and other receivables 127
14 cash and cash equivalents 127
15 borrowings 128
16 trade and other payables 128
17 financial instruments 129
18 provisions for liabilities and charges 137
19 postretirement benefits 139
20 share capital 144
21 sharebased payments 145
22 leases 146
23 contingent liabilities 147
24 related party transactions 147
25 acquisitions and disposals 148
rollsroyce holdings plc annual report 2014
financial statements
consolidated financial statements
94 financial statements
95
consolidated income statement
for the year ended 31 december 2014 
notes
2014
£m
represented 
2013
£m
continuing operations
 revenue 2 13736 14642
 cost of sales 10533 11482
 gross profit 3203 3160 
 other operating income 3 10  65
 commercial and administrative costs 1124 1237
 research and development costs 3 793 658
 share of results of joint ventures and associates 11 94 149 
 operating profit 1390 1479 
 profit on acquisitionreclassification of joint ventures 2 119 
 profit on disposal of businesses 25 6 216 
 profit before financing and taxation 2 1398 1814 
 financing income 4 121 327 
 financing costs 4 1452 441
 net financing 1331 114
 profit before taxation 
1
67 1700 
 taxation 5 151 377
profit for the year from continuing operations 84 1323 
discontinued operations
 profit for the year from ordinary activities 2 4 56
 profit on disposal 25 138 –
profit for the year from discontinued operations 142 56
profit for the year 58 1379 
attributable to
ordinary shareholders 69 1367 
noncontrolling interests 11 12 
profit for the year 58 1379 
earnings per ordinary share attributable to ordinary shareholders 6
from continuing operations
 basic 390p 7026p
 diluted 390p 6948p
from continuing and discontinued operations
 basic 368p 7326p 
 diluted 368p 7244p 
payments to ordinary shareholders in respect of the year 17
per share 231p 220p 
total 435 414 
1
 underlying profit before taxation 2 1617 1759 
 represented to reflect the energy business as a discontinued operation the relevant notes have also been represented financial statements
96 rollsroyce holdings plc annual report 2014
consolidated statement of comprehensive income
for the year ended 31 december 2014
notes
2014
£m
2013
£m
profit for the year 58 1379 
other comprehensive income
 items that will not be reclassified to profit or loss
 movements in postretirement schemes 19 1192 48 
 related tax movements 5 431 10 
761 58 
 items that may be reclassified to profit or loss
 foreign exchange translation differences on foreign operations 158 64
 reclassified to income statement on disposal of businesses 29 –
 share of other comprehensive income of joint ventures and associates 11 13 6
 related tax movements 5 2 1 
202 69
total comprehensive income for the year 617 1368 
attributable to
ordinary shareholders 650 1356 
noncontrolling interests 33 12 
total comprehensive income for the year 617 1368 financial statements
97
notes
2014
£m
2013
£m
assets
noncurrent assets
intangible assets 9 4804 4987 
property plant and equipment 10 3446 3392 
investments – joint ventures and associates 11 539 601 
investments – other 11 31 27 
other financial assets 17 107 674 
deferred tax assets 5 369 316 
postretirement scheme surpluses 19 1740 248 
11036 10245 
current assets
inventories 12 2768 3319 
trade and other receivables 13 5509 5092 
taxation recoverable 19 16 
other financial assets 17 22 74 
shortterm investments 7 321 
cash and cash equivalents 14 2862 3990 
assets held for sale 1 6 
11188 12818 
total assets 22224 23063 
liabilities
current liabilities
borrowings 15 68 207
other financial liabilities 17 209 1976
trade and other payables 16 6791 7045
current tax liabilities 184 204
provisions for liabilities and charges 18 433 348
7685 9780
noncurrent liabilities
borrowings 15 2193 2164
other financial liabilities 17 717 360
trade and other payables 16 2445 2138
noncurrent tax liabilities 10 10
deferred tax liabilities 5 1228 882
provisions for liabilities and charges 18 374 385
postretirement scheme deficits 19 1185 1041
8152 6980
total liabilities 15837 16760
net assets 6387 6303 
equity
equity attributable to ordinary shareholders
calledup share capital 20 376 376 
share premium account 179 80 
capital redemption reserve 159 163 
cash flow hedging reserve 81 68
other reserves 78 250 
retained earnings 5671 4804 
6382 5605 
noncontrolling interests 11 5 698 
total equity 6387 6303
the financial statements on pages 95 to 148 were approved by the board on 12 february 2015 and signed on its behalf by
john rishton chief executive     david smith chief financial officer
consolidated balance sheet
at 31 december 2014 financial statements
98 rollsroyce holdings plc annual report 2014
consolidated cash flow statement
for the year ended 31 december 2014
notes
2014
£m
2013
£m
reconciliation of cash flows from operating activities
operating profit from continuing operations 1390 1479 
operating lossprofit from discontinued operations 1 56
operating profit 1389 1535
profitloss on disposal of property plant and equipment 3 7 
share of results of joint ventures and associates 11 94 160
dividends received from joint ventures and associates 11 73 99 
return of capital from joint ventures 11 3 –
gain on consolidation of previously nonconsolidated subsidiary 3 –
amortisation and impairment of intangible assets 9 367 428 
depreciation and impairment of property plant and equipment 10 375 372 
increasedecrease in provisions 129 17
decrease in inventories 166 119
increase in trade and other receivables 878 533
increase in trade and other payables 214 376 
cash flows on other financial assets and liabilities held for operating purposes 30 9 
net defined benefit postretirement cost recognised in profit before financing 170 279 
cash funding of defined benefit post retirement schemes 322 315
sharebased payments 21 21 79 
net cash inflow from operating activities before taxation 1577 2278 
taxation paid 276 238
net cash inflow from operating activities 1301 2040 
cash flows from investing activities
additions of unlisted investments 11 1
disposals of unlisted investments – 1 
additions of intangible assets 477 503
purchases of property plant and equipment 648 669
government grants received 11 21 
disposals of property plant and equipment 65 7 
acquisitions of businesses 25 3 37
acquisition of noncontrolling interest 1937 –
reclassification of joint ventures to subsidiaries – 245 
acquisition of preference shares in subsidiary – 34
disposal of discontinued operations 25 1027 –
disposals of other businesses 25 24 273 
investments in joint ventures and associates 17 43
net cash outflow from investing activities 1966 740
cash flows from financing activities
repayment of loans 233 133
proceeds from increase in loans and finance leases 49 1013 
net cash flow from decrease in borrowings and finance leases 184 880 
interest received 18 15 
interest paid 63 58
decreaseincrease in shortterm investments 313 313
issue of ordinary shares net of expenses 1 32 
purchase of ordinary shares – share buyback 69 –
purchase of ordinary shares – other 2 3
dividend paid to noncontrolling interest 76 60
redemption of c shares 406 357
net cash outflowinflow from financing activities 468 136 
change in cash and cash equivalents 1133 1436 
cash and cash equivalents at 1 january 3987 2585 
exchange gainslosses on cash and cash equivalents 8 34
cash and cash equivalents at 31 december 2862 3987 financial statements
99
2014
£m 
2013
£m 
reconciliation of movements in cash and cash equivalents to movements in net funds
change in cash and cash equivalents 1133 1436 
cash flow from decreaseincrease in borrowings and finance leases 184 880
cash flow from decreaseincrease in shortterm investments 313 313 
change in net funds resulting from cash flows 1262 869 
net funds excluding cash and cash equivalents of businesses acquired 30 204
exchange gainslosses on net funds 19 43
fair value adjustments 59 105 
movement in net funds 1332 727 
net funds at 1 january excluding the fair value of swaps 1940 1213 
net funds at 31 december excluding the fair value of swaps 608 1940 
fair value of swaps hedging fixed rate borrowings 58 1
net funds at 31 december 666 1939 
the movement in net funds defined by the group as including the items shown below is as follows
at
 1 january 
2014
£m
funds
flow
£m
net funds
of businesses
acquired
£m
exchange 
differences
£m
fair value
 adjustments
£m
reclassifications
£m
at
31 december
2014
£m
cash at bank and in hand 982 228 15 – – 739 
money market funds 1157 470 5 – – 692 
shortterm deposits 1851 438 18 – – 1431 
overdrafts 3 3 – – – – 
cash and cash equivalents 3987 1133 8 – – 2862 
shortterm investments 321 313 – 1 – – 7 
other current borrowings 204 229 30 – 2 60 67
noncurrent borrowings 2163 3 – 14 57 60 2149
finance leases 1 42 – 2 – – 45
net funds excluding fair value of swaps 1940 1262 30 19 59 – 608 
fair value of swaps hedging fixed rate borrowings 1 59 58 
net funds 1939 1262 30 19 – – 666  financial statements
100 rollsroyce holdings plc annual report 2014
consolidated statement of changes in equity
for the year ended 31 december 2014
attributable to ordinary shareholders
notes
share 
capital
£m
share 
premium
£m
capital 
redemption 
reserve
£m
cash flow 
hedging 
reserve
1
£m
other 
reserves
2
£m
retained 
earnings
3
£m
total
£m
non
controlling 
interests 
nci
£m
total
equity
£m
at 1 january 2013 374 – 169 63 314 5185 5979 17 5996 
profit for the year – – – – – 1367 1367 12 1379 
foreign exchange translation differences on 
foreign operations – – – – 64 – 64 – 64
movement on postretirement schemes 19 – – – – – 48 48 – 48 
share of other comprehensive income of joint 
ventures and associates 11 – – – 5 1 – 6 – 6
related tax movements 5 – – – – 1 10 11 – 11 
total comprehensive income for the year – – – 5 64 1425 1356 12 1368 
arising on issues of ordinary shares 20 2 80 – – – 81 1 – 1 
issue of c shares 17 – – 366 – – 3 363 – 363
redemption of c shares 17 – – 360 – – 360 – – – 
ordinary shares purchased – – – – – 3 3 – 3
sharebased payments – direct to equity
 4
– – – – – 99 99 – 99 
reclassification of rollsroyce power systems ag
 5
– – – – – – – 669 669 
transactions with nci including dividend of £60m – – – – – – – 45 45
initial recognition of put option on nci
 6
– – – – – 1477 1477 45 1432
related tax movements 5 – – – – – 13 13 – 13 
other changes in equity in the year 2 80 6 – – 1806 1730 669 1061
at 1 january 2014 376 80 163 68 250 4804 5605 698 6303 
profit for the year – – – – – 69 69 11 58 
foreign exchange translation differences on 
foreign operations – – – – 141 – 141 17 158
reclassified to income statement on disposal of 
businesses 25 – – – – 29 – 29 – 29
movement on postretirement schemes 19 – – – – – 1199 1199 7 1192 
share of other comprehensive income of joint 
ventures and associates 11 – – – 13 – – 13 – 13
related tax movements 5 – – – – 2 433 435 2 433
total comprehensive income for the year – – – 13 172 835 650 33 617
arising on issues of ordinary shares 20 2 99 – – – 100 1 – 1 
issue of c shares 17 – – 414 – – 2 412 – 412
redemption of c shares 17 – – 408 – – 408 – – – 
ordinary shares purchased – share buyback
 7
– – – – – 69 69 – 69
ordinary shares cancelled
 7
20 2 – 2 – – – – – – 
ordinary shares purchased – other – – – – – 2 2 – 2
sharebased payments – direct to equity
 4
– – – – – 29 29 – 29 
transactions with nci – acquisition of nci shares – – – – – 584 584 584 – 
dividend paid to nci – – – – – – – 76 76
related tax movements 5 – – – – – 4 4 – 4
other changes in equity in the year – 99 4 – – 32 127 660 533
at 31 december 2014 376 179 159 81 78 5671 6382 5 6387 
1
  see accounting policies note 1
2
  other reserves include a merger reserve of £3m 2013 £3m 2012 £3m and a translation reserve of £75m 2013 £247m 2012 £311m 
3
  at 31 december 2014 14561097 ordinary shares with a net book value of £129m 2013 11960535 2012 20365787 ordinary shares with net book values of £91m and £125m 
respectively were held for the purpose of sharebased payment plans and included in retained earnings during the year 7770113 ordinary shares with a net book value of £64m 
2013 16603840 shares with a net book value of £118m vested in sharebased payment plans during the year the company acquired 169404 2013 298588 of its ordinary shares  
via reinvestment of dividends received on its own shares in addition the company issued 10200000 2013 7900000 new ordinary shares to the group’s share trust for its employees 
sharebased payment plans with a net book value of £100m 2013 £81m
4
  sharebased payments – direct to equity is the net of the credit to equity in respect of the sharebased payment charge to the income statement and the actual cost of shares vesting 
excluding those vesting from own shares
5
 on 1 january 2013 the group exercised rights that resulted in rollsroyce power systems ag rrps being classified as a subsidiary and consolidated
6
  as part of the rollsroyce power systems holding gmbh rrpsh shareholders’ agreement daimler had the option to sell its shares in rrpsh to rollsroyce for a period of six years  
from 1 january 2013 the initial fair value of the exercise price of this option in respect of bergen engines as £166m was recognised in 2012 and the amount in respect of rrps  
was recognised in 2013 and charged to retained earnings in addition £45m of the initial recognition of the put option on nci relating to bergen engines as recognised in 2012  
was reclassified from nci to retained earnings subsequent movements in the value of the liability are included in the income statement but excluded from the underlying results
7
 following the completion of the sale of the energy business to siemens on 1 december 2014 and further to the announcement on 19 june 2014 of a £1bn share buyback on
  10 december 2014 the company put in place a £250m programme to enable the purchase of its ordinary shares the aim of the buyback is to reduce the issued share capital of the 
 company helping enhance returns for shareholders in the period to 31 december 2014 8215000 shares were purchased at an average price of 840p these shares were cancelled financial statements
101
notes to the consolidated financial statements
1 accounting policies
the company
rollsroyce holdings plc the ‘company’ is a company domiciled in the united kingdom the consolidated financial statements  
of the company for the year ended 31 december 2014 consist of the consolidation of the financial statements of the company  
and its subsidiaries together referred to as the ‘group’ and include the group’s interest in jointly controlled and associated entities 
basis of preparation and statement of compliance
in accordance with european union eu regulations these financial statements have been prepared in accordance with international 
financial reporting standards ifrs issued by the international accounting standards board iasb as adopted for use in the eu effective 
at 31 december 2014 adopted ifrs 
the company has elected to prepare its parent company financial statements under uk generally accepted accounting practices  
these are set out on pages 149 to 151 and the accounting policies in respect of company financial statements are set out on page 150
these consolidated financial statements have been prepared on the historical cost basis except where adopted ifrs requires the 
revaluation of financial instruments to fair value and certain other assets and liabilities on an alternative basis – most significantly 
postretirement scheme obligations are valued on the basis required by ias 19 employee benefits – and on a going concern basis  
as described on page 164
the consolidated financial statements are presented in sterling which is the company’s functional currency
the preparation of financial statements in conformity with adopted ifrs requires management to make judgements and estimates that 
affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and 
expenses during the reporting period actual results could differ from those estimates
key areas of judgement
introduction
the group generates a significant portion of its revenues and profit on aftermarket arrangements arising from the installed original 
equipment oe fleet as a consequence the group will often agree contractual prices for oe deliveries that take into account the 
anticipated aftermarket arrangements accounting policies reflect this aspect of the business model in particular the policies for  
the recognition of contractual aftermarket rights and the linkage of oe and aftermarket arrangements
when a civil large engine is sold the economic benefits received usually far exceed the cash receivable under the contract due to the 
rights to valuable aftermarket spare parts business however because the value of this right cannot be estimated with enough precision 
accounting standards require that the revenue recognised in the accounts on sale of the engine is restricted to a total amount that results 
in a break even position the amount of the revenue recognised in excess of cash receivable is recognised as an intangible asset which is 
called a ‘contractual aftermarket right’ previously referred to as a ‘recoverable engine cost’ this change has been made to reflect better 
the nature of the asset
there is only one circumstance where accounting standards require the recognition of more of the value of the aftermarket rights  
when an engine is sold this occurs where a longterm aftermarket contract generally a totalcare agreement — tca and an engine  
sale contract have been negotiated together in this circumstance the part of the aftermarket rights covered by the tca can be valued 
much more precisely and is recognised at the time of the engine sale through accounting for the engine sale and tca as a single contract 
nevertheless the accounting profit recognised is still less than the economic benefits on the sale as there will be other valuable 
aftermarket rights for instance for the period beyond the tca term or for the sale of parts which are outside the scope of the tca which 
cannot be recognised
the group enters into arrangements with longterm suppliers to share the risks and rewards of major programmes – risk and revenue 
sharing arrangements rrsas the accounting policy for these arrangements has been chosen consistent with adopted ifrs to reflect 
their commercial effect
the key judgements in determining these accounting policies are described below 
contractual aftermarket rights cars
on delivery of civil aerospace engines the group has contractual rights to supply aftermarket parts to the customers and its intellectual 
rights warranty arrangements and where relevant statutory airworthiness or other regulatory requirements provide reasonable control 
over this supply the directors consider that these rights meet the definition of an intangible asset in ias 38 intangible assets however  
the directors do not consider that it is possible to determine a reliable fair value for this intangible asset accordingly an intangible asset 
car is only recognised on the occasions where the contractual price of the engine is below the cost of manufacture and then only to the 
extent of this deficit as this amount is reliably measureable an equal amount of revenue is recognised at the same point where a 
longterm aftermarket contract is linked to the oe contract see below the contractual price of the engine including amounts allocated 
from the aftermarket contract is above its cost of manufacture consequently no car is recognised
measure of performance on longterm aftermarket contracts
a large proportion of the group’s activities relate to longterm aftermarket contracts in particular totalcare and similar arrangements  
in the aerospace division under these contracts the group’s primary obligation is to maintain customers’ equipment in an operational 
condition and achieves this by undertaking various activities such as engine monitoring line maintenance and repair and overhaul over  financial statements
rollsroyce holdings plc annual report 2014 102
financial statements
rollsroyce holdings plc annual report 2014 102
notes to the consolidated financial statements
continued
the period of the contract in general the directors consider that the stage of performance of the contract should be by reference to the 
obligation to maintain an operational fleet and that this is best measured by the operation of the fleet accordingly stage of performance 
is measured by reference to flying hours of each fleet under contract 
linkage of original and longterm aftermarket contracts 
where the key terms of a longterm aftermarket contract are substantively agreed eg in a term sheet at the same time as an oe contract 
with the operator the directors consider these to be linked for accounting purposes and they are treated as a single contract as this best 
reflects the overall commercial effect where the oe contract is not with the operator eg where it is with an oe manufacturer or a lessor 
the contracts are not linked as they were not negotiated on a unified basis
risk and revenue sharing arrangements rrsas
rrsas with key suppliers workshare partners are a feature of our civil aerospace 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 nonrefundable cash entry fee and ii during the 
production phase it supplies components in return for a share of the programme revenues as a ‘life of type’ supplier ie as long as the 
engine remains in service the share of development costs borne by the workshare partner and of the revenues it receives reflect the 
partner’s proportionate cost of providing its production parts compared to the overall manufacturing cost of the engine the share is 
based on a jointly agreed forecast at the commencement of the arrangement
these arrangements are complex and have features that could be indicative of a collaboration agreement including sharing of risk and 
cost in a development programme a longterm supply agreement sharing of intellectual property or a combination of these in summary 
and as described below the directors’ view is that the development and production phases of the contract should be considered separately 
in accounting for the rrsa which results in the entry fee being matched against the nonrecurring costs incurred by the group
having considered the features above the directors considered that there is no directly applicable ifrs to determine an accounting policy 
for the recognition of entry fees of this nature in the income statement consequently in developing an accounting treatment for such 
entry fees that best reflects the commercial objectives of the contractual arrangement the directors have analysed these features in the 
context of relevant accounting pronouncements including those of other standard setters where these do not conflict with ifrs and have 
weighed the importance of each feature in faithfully representing the overall commercial effect the most important considerations that 
need to be balanced are the transfer of development risk the workshare partner receiving little standalone value from the payment of the 
entry fee and the overall effect being collaboration between the parties which falls short of being a joint venture as the group controls the 
programme also important in the analysis is the fact that whilst the group and the workshare partner share risks and rewards through 
the life of the contract these risks and rewards are very different during the development and production phases
in this context the entry fee might be considered to represent an amount paid as an equalisation of development costs a payment to 
secure a longterm supply arrangement a purchase of intellectual property or some combination thereof the accounting under these 
different scenarios could include recognition of the entry fee to match the associated costs in the income statement being spread over 
the life of the programme as a reduction in the cost of supply during production or being spread over the time period of the access to the 
intellectual property by the workshare partner
the directors consider that the most important features of the arrangement are the risk sharing and that the entry fee represents a 
contribution to the development costs that the group incurs in excess of its proportionate programme share the key judgements taken in 
reaching this view are the entry fee is determined by the parties on that basis and the contract specifies that in the event that a derivative 
engine is to be developed additional entry fees will also be calculated on this basis the workshare partners describe the entry fee in this 
way although the workshare partner receives little standalone value from paying the entry fee the entry fee together with its own 
development activities represent its aggregate investment in the collaboration the amount of the entry fee does not include any amount 
in excess of that necessary to equalise forecast development costs the group is not ‘on risk’ for the full development costs it incurs but for 
that amount less the entry fees received and as far as can be determined this appears to be common industry accounting for 
arrangements of this type under both adopted ifrs and us accounting standards which the directors do not believe conflicts with ifrs  
in this regard
the resulting accounting policy described on page 105 represents the commercial effect of the contractual arrangements in that the 
group recognises only those development costs to which it is exposed and thus reflects the significant transfer of development risk to the 
workshare partner and the costs of supply of parts during the production phase is measured at the workshare partner’s share of 
programme revenues which we consider to be a commercial fair value the directors do not consider that accounting which would result 
in entry fees only being recognised in the production phase would appropriately reflect the sharing of development risk accordingly the 
directors believe that the policy adopted best reflects the commercial objectives of the arrangements the nature of the relationship with 
the workshare partner and is in accordance with adopted ifrs
as described in the 2013 annual report an alternative view is that the rrsa contract cannot be divided into separate development and 
production phases as the fees and development components received by the group during the development phase are exchanged for  
the obligation to pay the supplier a predetermined share of any sales receipts during the production phase on this basis the entry fees 
received would be deferred in their entirety and recognised over the period of production the size of the difference between the two 
1 accounting policies continued financial statements
103
financial statements
103
approaches is monitored and is not currently expected to become material in the foreseeable future the impact of the different 
approaches on profit before tax and net assets which is not considered to be material is as follows
2014 2013
reported 
profit before tax
£m
underlying profit 
before tax
£m
net assets
£m
reported profit
 before tax
£m
underlying profit
 before tax
£m
net assets
£m
adopted policy 67 1617 6387 1700 1759 6303
difference 30
1
30 402 37 37 383
2
alternative policy 37 1587 5985 1663 1722 5920
1
 if the alternative policy were adopted the difference would be included in profit before financing which would change from £1398m as reported to £1368m
2
 the 2013 adjustment includes a consequential adjustment to transactions with joint ventures which was not reflected in the 2013 annual report
internally generated development costs
ias 38 requires that internally generated development costs should only be recognised if strict criteria are met in particular relating to 
technical feasibility and generation of future economic benefits the directors consider that due to the complex nature of new equipment 
programmes these criteria are not met until relatively late in the programme – civil aerospace programmes represent around half of 
development costs recognised for these the criteria are generally satisfied around the time of the initial engine certification
customer financing contingent liabilities
the group has contingent liabilities in respect of financing support provided to customers in order to assess whether a provision should 
be recognised judgement as to the likelihood of these crystallising is required this judgement is based on an assessment on the 
knowledge of the customers’ fleet plans the underlying value of the security provided and where appropriate the customers’ 
creditworthiness
key sources of estimation uncertainty
in applying the accounting policies estimates are made in many areas the actual outcome may differ from that calculated the key 
sources of estimation uncertainty at the balance sheet date that have a significant risk of causing material adjustment to the carrying 
amounts of assets and liabilities within the next financial year are set out below the estimation of the relevant assets and liabilities 
involves the combination of a number of assumptions sensitivities are disclosed in the relevant notes where this is appropriate and 
practicable
forecasts and discount rates
the carrying values of a number of items on the balance sheet are dependent on the estimates of future cash flows arising from the 
group’s operations in particular
• the assessment of whether the goodwill and other intangible assets carrying value at 31 december 2014 £1658 million 31 december 
2013 £1864 million arising on the consolidation of rrps is impaired is dependent of the present value of the future cash flows expected 
to be generated by the business 
• the assessment as to whether there are any indications of impairment of development participation certification and contractual 
aftermarket rights recognised as intangible assets carrying values at 31 december 2014 £2533 million 31 december 2013 £2499 
million is dependent on estimates of cash flows generated by the relevant assets and the discount rate used to calculate a present value 
these estimates include the performance of longterm contractual arrangements as described below as well as estimates for future 
market share pricing and unit cost for uncontracted business the risk of impairment is generally higher for newer programmes and  
for customer specific intangible assets cars for launch customers
assessment of longterm contractual arrangements
the group has longterm contracts that fall into different accounting periods and which can extend over significant periods – the most 
significant of these are longterm service arrangements in the civil aerospace business the estimated revenues and costs are inherently 
imprecise and significant estimates are required to assess engine flying hours time on wing and other operating parameters the pattern 
of future maintenance activity and the costs to be incurred and life cycle cost improvements over the term of the contracts the estimates 
take account of the inherent uncertainties and the risk of nonrecovery of any resulting contract balances 
postretirement benefits
the group’s defined benefit pension schemes and similar arrangements are assessed annually in accordance with ias 19 the accounting 
valuation which is based on assumptions determined with independent actuarial advice resulted in a net surplus of £555 million before 
deferred taxation being recognised on the balance sheet at 31 december 2014 31 december 2013 net deficit £793 million the size of the 
net surplusdeficit is sensitive to the market value of the assets held by the schemes and to actuarial assumptions which include price 
inflation pension and salary increases the discount rate used in assessing actuarial liabilities mortality and other demographic 
assumptions and the levels of contributions further details are included in note 19
1 accounting policies continued financial statements
rollsroyce holdings plc annual report 2014 104
financial statements
rollsroyce holdings plc annual report 2014 104
notes to the consolidated financial statements
continued
provisions
as described in the accounting policy on page 108 the group measures provisions carrying value at 31 december 2014 £807 million 
31 december 2013 £733 million at the directors’ best estimate of the expenditure required to settle the obligation at the balance sheet 
date these estimates take account of information available and different possible outcomes
taxation
the tax payable on profits is determined based on tax laws and regulations that apply in each of the numerous jurisdictions in which the 
group operates where the precise impact of these laws and regulations is unclear then reasonable estimates may be used to determine 
the tax charge included in the financial statements
significant accounting policies
the group’s significant accounting policies are set out below these accounting policies have been applied consistently to all periods 
presented in these consolidated financial statements and by all group entities
basis of consolidation
the group consolidated financial statements include the financial statements of the company and its subsidiary undertakings together 
with the group’s share of the results of joint arrangements and associates made up to 31 december in line with common practice in 
germany a small number of immaterial subsidiaries of rollsroyce power systems are not consolidated and are carried at cost in other 
investments if such subsidiaries become material they are consolidated the difference between the net assets recognised and the 
investment cost eliminated is recognised in other operating income
a subsidiary is an entity controlled by the company control exists when the company has power over an entity exposure to variable 
returns from its involvement with an entity and the ability to use its power over an entity so as to affect the company’s returns 
a joint arrangement is an entity in which the group holds a longterm interest and which is jointly controlled by the group and one  
or more other venturers under a contractual arrangement joint arrangements may be either joint ventures or joint operations all the 
group’s joint arrangements have been classified as joint ventures an associate is an entity being neither a subsidiary nor a joint 
arrangement in which the group holds a longterm interest and where the group has a significant influence the results of joint ventures 
and associates are accounted for using the equity method of accounting
any subsidiary undertakings joint ventures or associates sold or acquired during the year are included up to or from the dates of change 
of control transactions with noncontrolling interests are recorded directly in equity
where a put option over shares held by a noncontrolling interest has been agreed the group recognises a liability for the estimated 
exercise value of that option movements in the estimated liability after initial recognition are recognised in the income statement
all intragroup transactions balances income and expenses are eliminated on consolidation adjustments are made to eliminate the 
profit or loss arising on transactions with joint ventures and associates to the extent of the group’s interest in the entity
revenue recognition
revenues comprise sales to outside customers after discounts excluding value added taxes
sales of products both original equipment and spare parts are recognised when the significant risks and rewards of ownership of the 
goods are transferred to the customer the sales price agreed and the receipt of payment can be assured – this is generally on delivery on 
occasion the group may participate in the financing of oe most commonly by the provision of guarantees as described in note 18 in such 
circumstances the contingent obligations arising under these arrangements are taken into account in assessing when the significant risks 
and rewards of ownership have been transferred to the customer as described on page 101 a sale of oe at a contractual price below its 
cost of manufacture is considered to give rise to revenue to the extent that an intangible asset contractual aftermarket right is 
recognised at the same time 
sales of services are recognised by reference to the stage of completion based on services performed to date as described on page 103  
the assessment of the stage of completion is dependent on the nature of the contract but will generally be based on flying hours or 
equivalent for longterm aftermarket arrangements where the service is provided on a continuous basis costs incurred to the extent these 
relate to services performed up to the reporting date or achievement of contractual milestones where relevant 
as described on page 102 sales of products and services are treated as though they are a single contract where these components have 
been negotiated as a single commercial package and are so closely interrelated that they do not operate independently of each other and 
are considered to form a single transaction with an overall profit margin the total revenue is allocated between the two components such 
that the total agreed discount to list prices is allocated to revenue for each of the two components pro rata based on list prices the 
revenue is then recognised for each component on this basis as the products are delivered and services provided as described above 
where the contractual price of the oe component is below the revenue allocated from the combined arrangement this will give rise  
to an asset included in ‘amounts recoverable on contracts’ this asset reduces as services are provided increases as costs are incurred  
and reduces to zero by the end of the contract where the balance is a liability it is recognised in ‘accruals and deferred income’
1 accounting policies continued financial statements
105
financial statements
105
provided that the outcome of construction contracts can be assessed with reasonable certainty the revenues and costs on such contracts 
are recognised based on stage of completion and the overall contract profitability full provision is made for any estimated losses to 
completion of contracts having regard to the overall substance of the arrangements
progress payments received when greater than recorded revenue are deducted from the value of work in progress except to the extent 
that payments on account exceed the value of work in progress on any contract where the excess is included in accruals and deferred 
income within trade and other payables the amount by which recorded revenue of longterm contracts is in excess of payments on 
account is classified as amounts recoverable on contracts and is separately disclosed within trade and other receivables
totalcare arrangements
as described above these are accounted for on a stage of completion basis with the stage of completion based on the proportion of flying 
hours completed compared to the total estimated under the contract in making the assessment of future revenues costs and the level of 
profit recognised the group takes account of i the forecast utilisation of the engines by the operator ii the forecast costs to maintain the 
engines in accordance with the contractual requirements – the principal variables being the time between shop visits and the cost of each 
shop visit and iii the recoverability of any contract asset arising the group benchmarks the forecast costs against previous programmes 
recognising that the reliability of the forecasts will improve as operational experience of the engine increases to the extent that actual 
costs differ from forecast costs or that forecast costs change the cumulative impact is recognised in the period an allowance is made 
against contract assets arising based on both the customer’s creditworthiness and an assessment of the importance of the particular 
engine fleet to the customer again changes in this allowance are recognised in the period
risk and revenue sharing arrangements rrsas
as described on page 102 the group enters into arrangements with certain workshare partners under which these suppliers i contribute 
to the forecast costs of developing an engine by performing their own development work providing development parts and paying a 
nonrefundable cash entry fee and ii supply components for the production phase for which they receive consideration which is an 
agreed proportion of the total programme revenues both the suppliers’ contributions to the forecast nonrecurring development costs 
and their consideration are determined by reference to their proportionate forecast scopes of supply relative to that of the engine overall 
once the forecast costs and the scopes of supply have been agreed at the inception of the contract each party is then accountable for its 
own incurred costs no accounting entries are recorded when the suppliers undertake development work or when development 
components are supplied cash sums received are recognised in the income statement as a reduction in research and development costs 
incurred to match the expensing of the group’s related costs – where the cash sums are received in advance of the related costs being 
expensed or where the related costs are capitalised as intangible assets the recognition of the cash received is deferred in accruals and 
deferred income to match the recognition of the related expense or the amortisation of the related intangible asset respectively the 
payments to suppliers of their shares of the programme revenues for their production components are charged to cost of sales as 
programme revenues arise
the group has arrangements with partners who do not undertake development work or supply parts such arrangements are considered  
to be financial instruments as defined by ias 32 financial instruments presentation and are accounted for using the amortised 
cost method
government investment
where a government or similar body has previously invested in a development programme the group treats payments to that body  
as royalty payments which are matched to related sales
government grants
government grants 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 included in the balance sheet as deferred income 
nonmonetary grants are recognised at fair value
interest
interest receivablepayable is creditedcharged 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 chargecredit 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 taxation purposes and is calculated using the 
enacted or substantively enacted rates that are expected to apply when the asset or liability is settled
tax is charged or credited in the income statement or other comprehensive income 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
1 accounting policies continued financial statements
rollsroyce holdings plc annual report 2014 106
financial statements
rollsroyce holdings plc annual report 2014 106
notes to the consolidated financial statements
continued
deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and joint ventures except 
where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse 
in the foreseeable future deferred tax is not recognised on taxable temporary differences arising on the initial recognition of goodwill  
or for temporary differences arising from the initial recognition of assets and liabilities in a transaction that is not a business combination 
and that affects neither accounting nor taxable profit
deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the 
assets can be utilised 
accruals for tax contingencies require management to make judgements and estimates of exposures in relation to tax audit issues  
tax benefits are not recognised unless the tax positions will probably be sustained once considered to be probable management reviews 
each material tax benefit to assess whether a provision should be taken against full recognition of that benefit on the basis of potential 
settlement through negotiation andor litigation all provisions are included in current liabilities any liability relating to interest on tax 
liabilities is provided for in the tax charge
foreign currency translation
transactions denominated in currencies other than the functional currency of the transacting group undertaking are translated into  
the functional currency at the exchange rates ruling on the date of the transaction monetary assets and liabilities denominated in foreign 
currencies are translated into the relevant functional currency at the rate ruling at the year end exchange differences arising on foreign 
exchange transactions and the retranslation of assets and liabilities into functional currencies at the rate ruling at the year end are taken 
into account in determining profit before taxation
the trading results of group undertakings are translated into sterling at the average exchange rates for the year the assets and liabilities 
of overseas undertakings including goodwill and fair value adjustments arising on acquisition are translated at the exchange rates ruling 
at the year end exchange adjustments arising from the retranslation of the opening net investments and from the translation of the 
profits or losses at average rates are recognised in oci the cumulative amount of exchange adjustments was on transition to ifrs in 
2004 deemed to nil 
financial instruments
ias 39 financial instruments recognition and measurement requires the classification of financial instruments into separate categories  
for which the accounting requirement is different the group has classified its financial instruments as follows
• shortterm investments are generally classified as available for sale
• shortterm deposits principally comprising funds held with banks and other financial institutions trade receivables and shortterm 
investments not designated as available for sale are classified as loans and receivables
• borrowings trade payables financial rrsas put options on nci and c shares are classified as other liabilities and
• derivatives comprising foreign exchange contracts interest rate swaps and commodity swaps are classified as fair value through profit 
or loss
financial instruments are recognised at the contract date and initially measured at fair value their subsequent measurement depends  
on their classification
• available for sale assets are held at fair value changes in fair value arising from changes in exchange rates are included in the income 
statement all other changes in fair value are taken to equity on disposal the accumulated changes in value recorded in equity are 
included in the gain or loss recorded in the income statement
• loans and receivables and other liabilities are held at amortised cost and not revalued except for changes in exchange rates and 
forecast contractual cash flows which are included in the income statement unless they are included in a fair value hedge accounting 
relationship where such a hedging relationship exists the instruments are revalued in respect of the risk being hedged with the change 
in value included in the income statement
• fair value through profit or loss items are held at fair value changes in fair value are included in the income statement unless the 
instrument is included in a cash flow hedge if the instruments are included in an effective cash flow hedging relationship changes  
in value are taken to equity when the hedged forecast transaction occurs amounts previously recorded in equity are recognised  
in the income statement
financial instruments are derecognised on expiry or when all contractual rights and obligations are transferred
hedge accounting
the group does not generally apply hedge accounting in respect of forward foreign exchange contracts or commodity swaps held  
to manage the cash flow exposures of forecast transactions denominated in foreign currencies or in commodities respectively
the group applies hedge accounting in respect of transactions entered into to manage the fair value and cash flow exposures of its 
borrowings forward foreign exchange contracts are held to manage the fair value exposures of borrowings denominated in foreign 
currencies and are designated as fair value hedges interest rate swaps are held to manage the interest rate exposures and are designated 
as fair value or cash flow hedges of fixed and floating rate borrowings respectively
1 accounting policies continued financial statements
107
financial statements
107
changes in the fair values of derivatives designated as fair value hedges and changes in fair value of the related hedged item are 
recognised directly in the income statement
changes in the fair values of derivatives that are designated as cash flow hedges and are effective are recognised directly in equity  
any ineffectiveness in the hedging relationships is included in the income statement the amounts deferred in equity are recognised  
in the income statement to match the recognition of the hedged item
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 cumulative gain or loss on the hedging 
instrument recognised in equity is retained in equity until the forecast transaction occurs if a hedged transaction is no longer expected  
to occur the net cumulative gain or loss previously recognised in equity is transferred to the income statement
the portion of a gain or loss on an instrument used to hedge a net investment in a foreign operation that is determined to be an effective 
hedge is recognised directly in equity the ineffective portion is recognised immediately in the income statement gains and losses 
accumulated in the translation reserve will be recycled to profit when the foreign operation is sold
business combinations and goodwill
on the acquisition of a business fair values are attributed to the identifiable assets and liabilities and contingent liabilities unless the fair value 
cannot be measured reliably in which case the value is subsumed into goodwill where fair values of acquired contingent liabilities cannot be 
measured reliably the assumed contingent liability is not recognised but is disclosed in the same manner as other contingent liabilities 
goodwill recognised represents the excess of the fair value of the purchase consideration over the fair value to the group of the net of 
the identifiable assets acquired and the liabilities assumed on transition to ifrs on 1 january 2004 business combinations were not 
retrospectively adjusted to comply with adopted ifrs and goodwill was recognised based on the carrying value under the previous 
accounting policies goodwill in respect of the acquisition of a subsidiary is recognised as an intangible asset goodwill arising on the 
acquisition of joint ventures and associates is included in the carrying value of the investment
certification costs and participation fees
costs incurred in respect of meeting regulatory certification requirements for new civil aeroengineaircraft combinations including 
payments made to airframe manufacturers for this and participation fees are carried forward in intangible assets to the extent that they 
can be recovered out of future sales and are charged to the income statement over the programme life up to a maximum of 15 years  
from the entry into service of the product
research and development
in accordance with ias 38 intangible assets 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 capitalised as an internally generated 
intangible asset only if it meets strict criteria relating in particular to technical feasibility and generation of future economic benefits  
as described on page 103 the group considers that it is not possible to distinguish reliably between research and development activities 
until relatively late in the programme
expenditure capitalised is amortised over its useful economic life up to a maximum of 15 years from the entry into service of the product
contractual aftermarket rights
as described under key judgements on page 101 the group may sell oe to customers at a price below its cost on the basis that it also 
receives valuable aftermarket rights such a sale is considered to give rise to an intangible asset which is recognised in accordance with  
ias 38 at the same time as the revenue at an amount equal to the cash deficit and is amortised on a straightline basis over the period  
that highly probable aftermarket sales are expected to be earned
customer relationships
the fair value of customer relationships recognised as a result of a business combination relate to the acquired company’s established 
relationships with its existing customers that result in repeat purchases and customer loyalty amortisation occurs on a straightline  
basis over its useful economic life up to a maximum of 15 years
software
the cost of acquiring software that is not specific to an item of property plant and equipment is classified as an intangible asset and 
amortised over its useful economic life up to a maximum of five years
property plant and equipment
property plant and equipment assets are stated at cost less accumulated depreciation and any provision for impairment in value
1 accounting policies continued financial statements
rollsroyce holdings plc annual report 2014 108
financial statements
rollsroyce holdings plc annual report 2014 108
notes to the consolidated financial statements
continued
depreciation is provided on a straightline basis to write off the cost less the estimated residual value of property plant and equipment 
over their estimated useful lives no depreciation is provided on assets in the course of construction estimated useful lives are as follows
i land and buildings as advised by the group’s professional advisers
 a freehold buildings – five to 45 years average 25 years
 b leasehold buildings – lower of adviser’s estimates or period of lease
 c no depreciation is provided on freehold land
ii plant and equipment – five to 25 years average 13 years
iii aircraft and engines – five to 20 years average 14 years
operating leases
payments made and rentals received under operating lease arrangements are chargedcredited to the income statement on a straight
line basis
impairment of noncurrent assets
impairment of noncurrent 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 cashgenerating unit to which the asset belongs goodwill 
and intangible assets not yet available for use are tested for impairment annually other 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 cashgenerating unit 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 to sell if this is readily available the value in use is the present value of future cash flows using a pretax discount rate  
that reflects the time value of money and the risk specific to the asset
inventories
inventories and work in progress are valued at the lower of cost and net realisable value on a firstin firstout basis 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
cash and cash equivalents
cash and cash equivalents includes cash at bank and in hand investments in moneymarket funds and shortterm deposits with  
a maturity of three months or less on inception the group considers overdrafts repayable on demand to be an integral part of its  
cash management activities and these are included in cash and cash equivalents for the purposes of the cash flow statement
provisions
provisions are recognised when the group has a present obligation as a result of a past event and it is probable that the group will  
be required to settle that obligation provisions are measured at the directors’ best estimate of the expenditure required to settle the 
obligation at the balance sheet date and are discounted to present value where the effect is material
postretirement benefits
pensions and similar benefits principally healthcare are accounted for under ias 19 employee benefits
for defined benefit plans obligations are measured at discounted present value using a discount rate derived from highquality corporate 
bonds denominated in the currency of the plan whilst plan assets are recorded at fair value surpluses in schemes are recognised as assets 
only if they represent economic benefits available to the group in the future a liability is recognised to the extent that the minimum 
funding requirements in respect of past service will give rise to an unrecognisable surplus 
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
• pastservice costs are recognised immediately and
• financing costs are recognised in the periods in which they arise
actuarial gains and losses and movements in unrecognised surpluses and minimum funding liabilities are recognised immediately in oci
payments to defined contribution schemes are charged as an expense as they fall due
1 accounting policies continued financial statements
109
financial statements
109
sharebased payments
the group provides sharebased payment arrangements to certain employees these are principally equitysettled arrangements and  
are measured at fair value excluding the effect of nonmarket based vesting conditions at the date of grant the fair value is expensed  
on a straightline 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 except where additional shares vest as a result of the total shareholder return tsr performance condition  
in the performance share plan psp
cashsettled share options grants in the international sharesave plan are measured at fair value at the balance sheet date the group 
recognises a liability at the balance sheet date based on these fair values taking into account the estimated number of options that will 
actually vest and the relative completion of the vesting period changes in the value of this liability are recognised in the income statement 
for the year
the cost of shares of rollsroyce holdings plc held by the group for the purpose of fulfilling obligations in respect of employee share plans 
is deducted from equity in the consolidated balance sheet see note 21 for a further description of the sharebased payment plans
sales financing support
in connection with the sale of its products the group will on occasion provide financing support for its customers these arrangements 
fall into two categories creditbased guarantees and assetvalue guarantees in accordance with the requirements of ias 39 and ifrs 4 
insurance contracts creditbased guarantees are treated as insurance contracts the group considers assetvalue guarantees to be 
nonfinancial liabilities and accordingly these are also treated as insurance contracts as described on page 103 the directors consider the 
likelihood of crystallisation in assessing whether provision is required for any contingent liabilities
the group’s contingent liabilities relating to financing arrangements are spread over many years and relate to a number of customers  
and a broad product portfolio and are reported on a discounted basis
revisions to adopted ifrs in 2014
with effect from 1 january 2014 the group has adopted ifrs 10 consolidated financial statements ifrs 11 joint arrangements and ifrs 12 
disclosure of interests in other entities the principal potential effect was that certain entities previously classified as joint ventures might 
be classified as joint operations requiring the group’s share of the individual assets and liabilities of these entities to be included in the 
financial statements rather than the equity accounting method previously applied the group has reviewed its material joint ventures  
and has concluded that none are to be classified as joint operations under the requirements of ifrs 11 disclosures required by ifrs 12  
are included in note 11
revisions to ifrs not applicable in 2014
standards and interpretations issued by the iasb are only applicable if endorsed by the eu 
once endorsed ifrs 9 financial instruments will simplify the classification of financial assets for measurement purposes but is not 
anticipated to have a significant impact on the financial statements
ifrs 15 revenue from contracts with customers effective for the year ending 31 december 2017 not yet endorsed by the eu provides  
a single principlesbased fivestep model to be applied to all sales contracts based on the transfer of control of goods and services to 
customers it replaces the separate models for goods services and construction contracts currently included in ias 11 construction 
contracts and ias 18 revenue given the nature of the group’s longterm contracts it is likely that the adoption of ifrs 15 will require 
significant judgement
based on an initial assessment ifrs 15 may have a significant impact on the timing of recognition of revenue on individual longterm 
contracts although this impact is likely to be significantly reduced at a group level when all longterm contracts with different start  
and end dates are combined the group will continue to assess the impact during 2015
the group does not consider that any other standards amendments or interpretations issued by the iasb but not yet applicable will have 
a significant impact on the financial statements
1 accounting policies continued financial statements
rollsroyce holdings plc annual report 2014 110
financial statements
rollsroyce holdings plc annual report 2014 110
notes to the consolidated financial statements
continued
2 segmental analysis
the analysis by division business segment is presented in accordance with ifrs 8 operating segments on the basis of those segments 
whose operating results are regularly reviewed by the board the chief operating decision maker as defined by ifrs 8 as follows
aerospace division
civil      –  development manufacture marketing and sales of commercial aero engines and aftermarket services
defence     –  development manufacture marketing and sales of military aero engines and aftermarket services
land  sea division
power systems  –  development manufacture marketing and sales of diesel engines and power systems 
marine     –  development manufacture marketing and sales of marinepower propulsion systems and aftermarket services
nuclear  energy  –  development manufacture marketing and sales of nuclear systems for civil power generation and naval propulsion 
systems nuclear and power systems for the offshore oil  gas industry and electrical power generation energy 
and aftermarket services the energy business was sold on 1 december 2014 – see note 25
the operating results reviewed by the board are prepared on an underlying basis which the board consider reflects better the economic 
substance of the group’s trading during the year additional disclosure of the two segments is also provided the principles adopted to 
determine underlying results are
underlying revenues – where revenues are denominated in a currency other than the functional currency of the group undertaking 
these reflect the achieved exchange rates arising on settled derivative contracts
underlying profit before financing – where transactions are denominated in a currency other than the functional currency of the group 
undertaking this reflects the transactions at the achieved exchange rates on settled derivative contracts in addition adjustments have 
been made to exclude oneoff pastservice credits on postretirement schemes exceptional restructuring costs and the effect of 
acquisition accounting
underlying profit before taxation – in addition to those adjustments in underlying profit before financing
• includes amounts realised from settled derivative contracts and revaluation of relevant assets and liabilities to exchange rates forecast 
to be achieved from future settlement of derivative contracts and
• excludes unrealised amounts arising from revaluations required by ias 39 financial instruments recognition and measurement changes 
in value of financial rrsa contracts arising from changes in forecast payments changes in the value of put options on nci and the net 
impact of financing costs related to postretirement scheme benefits
taxation – the tax effect of the adjustments above are excluded from the underlying tax charge in addition changes in the amount of 
recoverable advance corporation tax recognised that arise from the above adjustments are also excluded 
this analysis also includes a reconciliation of the underlying results to those reported in the consolidated income statement financial statements
111
financial statements
111
2 segmental analysis continued
year ended 31 december 2014
aerospace land  sea
inter
segment
£m
total 
reportable 
segments
£m
civil
£m
defence
£m
total
£m
power
 systems
£m
marine
£m
nuclear 
 energy
£m
intra
segment
£m
total
£m
underlying revenue from sale of original 
equipment 3265 816 4081 1893 1070 556 78 3441 – 7522 
underlying revenue from aftermarket services 3572 1253 4825 827 639 852 77 2241 – 7066 
total underlying revenue 6837 2069 8906 2720 1709 1408 155 5682 – 14588 
underlying operating profit excluding share of 
results of joint ventures and associates 849 350 1199 256 138 42 13 423 – 1622 
share of results of joint ventures and associates 93 16 109 3 – 3 – – – 109 
underlying profit before financing and taxation 942 366 1308 253 138 45 13 423 – 1731 
segment assets 10268 1460 11728 3581 1636 954 22 6149 1269 16608 
investments in joint ventures and associates 507 13 520 7 5 7 – 19 – 539 
segment liabilities 7418 1743 9161 1100 1075 880 – 3055 1269 10947
net assetsliabilities 3357 270 3087 2488 566 81 22 3113 – 6200 
investment in intangible assets property plant 
and equipment and joint ventures and associates 836 78 914 144 36 62 – 242 – 1156 
depreciation amortisation and impairment 381 49 430 221 38 53 – 312 – 742 
year ended 31 december 2013
1
underlying revenue from sale of original 
equipment 3035 1385 4420 2004 1288 565 72 3785 – 8205 
underlying revenue from aftermarket services 3620 1206 4826 827 749 973 75 2474 – 7300 
total underlying revenue 6655 2591 9246 2831 2037 1538 147 6259 – 15505 
underlying operating profit excluding share of 
results of joint ventures and associates 708 424 1132 296 233 63 2 594 – 1726 
share of results of joint ventures and associates 136 14 150 2 – 11 – 9 – 159 
underlying profit before financing and taxation 844 438 1282 294 233 74 2 603 – 1885 
segment assets 9587 1437 11024 3927 1701 1616 10 7234 734 17524 
investments in joint ventures and associates 495 17 512 29 5 55 – 89 – 601 
segment liabilities 6243 1660 7903 3034 985 1015 – 5034 733 12204
net assetsliabilities 3839 206 3633 922 721 656 10 2289 1 5921 
investment in intangible assets property plant 
and equipment and joint ventures and associates 891 103 994 142 23 80 – 245 – 1239 
depreciation and amortisation and impairment 349 53 402 272 63 63 – 398 – 800
1
 the split between oe and aftermarket revenue for the year ended 31 december 2013 in marine and nuclear  energy has been amended compared with that included on page 123 of 
 the 2013 annual report financial statements
rollsroyce holdings plc annual report 2014 112
financial statements
rollsroyce holdings plc annual report 2014 112
notes to the consolidated financial statements
continued
2 segmental analysis continued
reconciliation to reported results
year ended 31 december 2014
total reportable 
segments
£m
underlying 
central items
£m
total
underlying
£m
underlying 
adjustments
£m
discontinued 
business
£m
group
£m
revenue from sale of original equipment 7522 – 7522 61 283 7300 
revenue from aftermarket services 7066 – 7066 200 430 6436 
total revenue 14588 – 14588 139 713 13736 
operating profit excluding share of results of joint ventures  
and associates 1622 53
1
1569 274 1 1296 
share of results of joint ventures and associates 109 – 109 13 2 94 
profit on transfer of joint ventures to subsidiaries – – – 2 – 2 
profit on disposal of businesses – – – 6 – 6 
profit before financing and taxation 1731 53 1678 279 1 1398
net financing 61 61 1270 – 1331
profit before taxation 114 1617 1549 1 67 
taxation 387 387 239 3 151
profit for the year from continuing operations 1226 1310 – 84 
profit for the year from discontinued operations 4 –  138 142
profit for the year 1230 1310 138 58 
attributable to
ordinary shareholders 1224 1293 138 69 
noncontrolling interests 6 17 – 11
year ended 31 december 2013
revenue from sale of original equipment 8205 – 8205 70 328 7947 
revenue from aftermarket services 7300 – 7300 62 543 6695 
total revenue 15505 – 15505 8 871 14642 
operating profit excluding share of results of joint ventures  
and associates 1726 54
1
1672 297 45 1330 
share of results of joint ventures and associates 159 – 159 1 11 149 
profit on transfer of joint ventures to subsidiaries – – – 119 – 119 
profit on disposal of businesses – – – 216 – 216 
profit before financing and taxation 1885 54 1831 39 56 1814 
net financing 72 72 39 3 114
profit before taxation 126 1759 – 59 1700 
taxation 434 434 54 3 377
profit for the year from continuing operations 1269 54 – 1323 
profit for the year from discontinued operations 56 – – 56 
profit for the year 1325 54 – 1379
attributable to
ordinary shareholders 1224 143 – 1367 
noncontrolling interests 101 89 – 12 
1
 central corporate costs
discontinued operations
2014
£m
2013
£m
revenue 713 871
profit before taxation 1 59
tax on ordinary activities 3 3
profit for the year from ordinary activities 4 56
profit on disposal 136 –
tax on profit on disposal 2 –
profit for the year from discontinued operations 142 56
net cash outflowinflow from operating activities 127 51 
net cash outflow from investing activities 35 51 
net cash flow from financing activities – – 
net change in cash and cash equivalents 162 –  financial statements
113
financial statements
113
2 segmental analysis continued
underlying adjustments
2014 2013
revenue
£m
profit before
financing
£m
net 
financing
£m
taxation 
£m
revenue
£m
profit before
financing
£m
net 
financing
£m
taxation
£m
underlying performance 14588 1678 61 387 15505 1831 72 434
revenue recognised at exchange rate 
on date of transaction 139 – – – 8 – – – 
realised gains on settled 
derivative contracts
1
– 87 5 – – 10 5 – 
net unrealised fair value changes to 
derivative contracts
2
– 15 1141 – – – 250 –
effect of currency on contract accounting – 13 – – – 18 – –
revaluation of trading assets and liabilities – 11 8 – – – – – 
put option on nci and financial rrsas – 
foreign exchange differences and other 
unrealised changes in value – – 87 – – – 251 –
effect of acquisition accounting
3
– 142 – – – 265 – – 
pensions discretionary increase – – – – 64 – – 
net postretirement scheme financing – – 29 – – – 26 – 
profit on acquisitionreclassification of 
joint ventures – 2 – – – 119 – – 
profit on disposal of businesses – 6 – – – 216 – – 
exceptional restructuring
4
– 39 – – – – – –
other
5
– 6 – – – 61 7 – 
related tax effect – – – 239 – – – 54 
total underlying adjustments 139 279 1270 239 8 39 39 54 
discontinued operations 713 1 – 3 871 56 3 3
reported per consolidated income statement 13736 1398 1331 151 14642 1814 114 377
1
  realised gains on settled derivative contracts include adjustments to reflect the gains in the same period as the related trading cash flows
2
  unrealised fair value changes to derivative contracts i include those included in equity accounted joint ventures which are included in profit before financing and ii exclude those 
for which the related trading contracts have been cancelled when the fair value changes are recognised immediately in underlying profit
3
  the adjustment eliminates charges recognised as a result of recognising assets in acquired businesses at fair value
4
 restructuring is excluded from the underlying performance when it relates to the closure of a significant business or a site
5
 in 2013 other included the exclusion of other operating income £63m and the revaluation of preference shares in rrps ag which were acquired
the reconciliation of underlying earnings per ordinary share is shown in note 6
reconciliation to the balance sheet
2014
£m
2013
£m
reportable segment assets 16608 17524 
investments in joint ventures and associates 539 601 
cash and cash equivalents and shortterm investments 2869 4311 
fair value of swaps hedging fixed rate borrowings 80 47 
income tax assets 388 332 
postretirement scheme surpluses 1740 248 
total assets 22224 23063 
reportable segment liabilities 10947 12204
borrowings 2261 2371
fair value of swaps hedging fixed rate borrowings 22 48
income tax liabilities 1422 1096
postretirement scheme deficits 1185 1041
total liabilities 15837 16760
net assets 6387 6303  financial statements
rollsroyce holdings plc annual report 2014 114
financial statements
rollsroyce holdings plc annual report 2014 114
notes to the consolidated financial statements
continued
2 segmental analysis continued
geographical segments 
the group’s revenue by destination from continuing operations is shown below
2014
£m
2013
£m
united kingdom 1599 1677 
norway 322 520 
germany 734 972 
switzerland 670 868 
spain 113 174 
italy 201 233 
france 292 259 
russia 86 111 
rest of europe 575 637 
united states of america 3751 3910 
canada 472 474 
south america 407 302 
saudi arabia 327 544 
rest of middle east 418 339 
india 161 230 
china 1290 1038 
south korea 485 452 
japan 272 235 
malaysia 280 235 
singapore 396 544 
rest of asia 493 596 
africa 115 87 
australasia 207 143 
other 70 62 
13736 14642 
no single customer represented 10 or more of the group’s revenue
the carrying amounts of the group’s noncurrent assets excluding financial instruments deferred tax assets and postretirement benefit 
surpluses by the geographical area in which the assets are located are as follows
£m £m
united kingdom 3864 3649 
united states of america 827 872 
nordic countries 724 823 
germany 2493 2739 
other 912 924
8820 9007 financial statements
115
financial statements
115
3 research and development and other income
research and development
2014
£m
2013
£m
expenditure in the year 818 725
capitalised as intangible assets 83 110 
amortisation of capitalised costs 125 130
net research and development cost 860 745
entry fees received 51 126 
entry fees deferred in respect of charges in future years 38 50
recognition of previously deferred entry fees 54 11 
net cost recognised in the income statement 793 658
underlying adjustments relating to effects of acquisition accounting and foreign exchange 63 59 
discontinued operations 25 25
net underlying cost recognised in the income statement 755 624
other income
in october 2011 rollsroyce and united technologies corp utc announced their intention to form a new joint venture to develop  
an engine to power future midsize aircraft 120230 passenger aircraft in september 2013 the parties agreed not to proceed with  
the partnership other operating income in 2013 includes £63 million as a result of this
4 net financing
note
2014 2013
per 
consolidated 
income 
statement
£m
underlying
financing
1
£m
per 
consolidated 
income 
statement
£m
underlying
financing
1
£m
financing income
interest receivable 17 17 15 15 
fair value gains on foreign currency contracts
2
17 2 – 287 – 
put option on nci and financial rrsas – foreign exchange differences  
and other unrealised changes in value 17 89 – 8 – 
finance income on postretirement scheme surpluses 19 13 – 17 – 
121 17 327 15 
financing costs
interest payable 63 63 58 58
fair value losses on foreign currency contracts
2
17 1127 – 3 – 
financial rrsas – financing 17 7 5 9 9
put option on nci and financial rrsas – foreign exchange differences  
and other unrealised changes in value 17 174 – 259 – 
fair value losses on commodity derivatives
2
17 15 – 34 – 
finance cost on postretirement scheme deficits 19 42 – 43 – 
net foreign exchange losses 13 – 5 – 
other financing charges 11 10 30 20
1452 78 441 87
net financing 1331 61 114 72
analysed as
net interest payable 46 46 43 43
net postretirement scheme financing 29 – 26 – 
net other financing 1256 15 45 29
net financing 1331 61 114 72
1
 see note 2
2
 net lossgain on fair value items through profit or loss 17 1140 – 250 – financial statements
rollsroyce holdings plc annual report 2014 116
financial statements
rollsroyce holdings plc annual report 2014 116
notes to the consolidated financial statements
continued
5 taxation
uk overseas total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
current tax
current tax charge for the year 8 7 240 301 248 308 
less double tax relief – 1 – – – 1
8 6 240 301 248 307 
adjustments in respect of prior years 1 2 12 29 13 31 
9 8 252 330 261 338 
deferred tax
deferred tax creditcharge for the year 72 212 77 68 149 144 
adjustments in respect of prior years 14 8 11 37 25 45
derecognition of advance corporation tax 64 – – – 64 – 
credit resulting from reduction in tax rates – 59 – 1 – 60
22 145 88 106 110 39 
recognised in the income statement 13 153 164 224 151 377 
other tax chargescredits
oci equity
items that will not 
be reclassified 
items that may
 be reclassified
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
current tax
 sharebased payments – direct to equity 3 5 
deferred tax
 movement in postretirement schemes 431 10 
 sharebased payments – direct to equity 7 8 
 net investment hedge 2 1 
431 10 2 1 4 13 
tax reconciliation on continuing operations 
2014
£m
2013
£m
profit before taxation 67 1700 
less share of results of joint ventures and associates note 11 94 149
lossprofit before taxation excluding joint ventures and associates 27 1551 
nominal tax creditcharge at uk corporation tax rate 215 2013 2325 6 361 
uk rd credit 6 13
rate differences 71 59
profit on reclassification of joint ventures to subsidiaries – 27
change in value of put option on nci 17 60 
other permanent differences 22 12 
benefit to deferred tax from previously unrecognised tax losses and temporary differences 3 7
tax losses in year not recognised in deferred tax 4 6 
adjustments in respect of prior years 12 14
derecognition of advance corporation tax 64 –
reduction in closing deferred taxes resulting from decrease in tax rates – 60
151 377
underlying items note 2 390 431 
nonunderlying items 239 54
151 377  financial statements
117
financial statements
117
5 taxation continued
tax on discontinued operations
2014
£m
2013
£m
tax creditcharge on profitloss on ordinary activities 3 3
tax credit on disposal of discontinued operations 2 –
5 3
deferred taxation assets and liabilities
2014
£m
2013
£m
at 1 january 566 242
amount creditedcharged to income statement 120 53
amount chargedcredited to other comprehensive income 433 11 
amount chargedcredited to equity 7 8 
acquisition of businesses 3 282
exchange differences 30 8
at 31 december 859 566
deferred tax assets 369 316 
deferred tax liabilities 1228 882
859 566
the analysis of the deferred tax position is as follows
at 
1 january 
2014
£m
recognised
in income
statement 
£m
recognised
in oci
£m
recognised
in equity
£m
disposal 
of businesses
£m
exchange 
differences
£m
at 
31 december 
2014
£m
intangible assets 511 41 – – – 15 455
property plant and equipment 210 20 – – 6 1 195
other temporary differences 80 23 2 10 1 7 97 
amounts recoverable on contracts 380 146 – – – – 526
pensions and other postretirement scheme benefits 153 54 431 – – 8 324
foreign exchange and commodity financial  
assets and liabilities 92 226 – – – 1 135 
losses 323 65 – 3 4 2 393 
rd expenditure credit 7 9 – – – – 16 
advance corporation tax 64 64 – – – – – 
566 120 433 7 3 30 859
included in  taxation 110
  discontinued operations 10
at 
1 january 
2013
£m
recognised
in income
statement 
£m
recognised
in oci
£m
recognised
in equity
£m
acquisition
 of businesses
£m
exchange 
differences
£m
at 
31 december 
2013
£m
intangible assets 232 34 – – 311 2 511
property plant and equipment 158 17 – – 70 1 210
other temporary differences 12 9 1 3 60 5 80 
amounts recoverable on contracts 351 29 – – – – 380
pensions and other postretirement scheme benefits 110 – 10 – 36 3 153 
foreign exchange and commodity financial  
assets and liabilities 56 36 – – – – 92
losses 369 55 – 5 3 1 323 
rd expenditure credit – 7 – – – – 7 
advance corporation tax 64 – – – – – 64 
242 53 11 8 282 8 566
included in taxation 39
  discontinued operations 14 financial statements
rollsroyce holdings plc annual report 2014 118
financial statements
rollsroyce holdings plc annual report 2014 118
notes to the consolidated financial statements
continued
5 taxation continued
unrecognised deferred tax assets
2014
£m
2013
£m
advance corporation tax 182 118 
losses and other unrecognised deferred tax assets 35 39 
deferred tax not recognised on unused tax losses and other items on the basis that future economic benefit is uncertain 217 157
deferred taxation assets and liabilities
the uk corporation tax rate reduced to 21 from 1 april 2014 and will reduce further to 20 from 1 april 2015 as the reduction was 
substantively enacted prior to the year end the closing deferred tax assets and liabilities have been calculated at this rate
the deferred tax asset recognised relating to advance corporation tax has reduced during the year due to a decrease in the net deferred 
tax liabilities against which the asset can be offset the main reasons for this are the additional shadow advance corporation tax arising  
on the share buyback and the unrealised fair value change on derivative contracts 
the temporary differences associated with investments in subsidiaries joint ventures and associates for which a deferred tax liability 
has not been recognised aggregate to £512 million 2013 £573 million no deferred tax liability has been recognised on the potential 
withholding tax due on the remittance of undistributed profits as the group is able to control the timing of such remittances and it is 
probable that consent will not be given in the foreseeable future
6 earnings per ordinary share
basic earnings per ordinary share eps are calculated by dividing the profit attributable to ordinary shareholders by the weighted average 
number of ordinary shares in issue during the year excluding ordinary shares held under trust which have been treated as if they had 
been cancelled
diluted eps are calculated by adjusting the weighted average number of ordinary shares in issue during the year for the bonus element  
of share options
2014 2013
basic
potentially 
dilutive 
share options diluted
1
 basic
potentially 
dilutive 
share options diluted 
profit attributable to ordinary shareholders £m
 continuing operations 73 73 1311 1311 
 discontinued operations 142 142 56 56
69 69 1367 1367 
weighted average number of ordinary shares millions 1874 18 1892 1866 21 1887 
eps pence
 continuing operations 390 – 390 7026 078 6948
 discontinued operations 758 – 758 300 004 296
368 – 368 7326 082 7244 
1
 as there is a loss on continuing operations the effect of potential dilutive ordinary shares is antidilutive
the reconciliation between underlying eps and basic eps is as follows
2014 2013
pence £m pence £m
underlying epsunderlying profit attributable to ordinary shareholders 6531 1224 6559 1224 
total underlying adjustments to profit before tax note 2 8265 1549 – – 
related tax effects 1275 239 289 54 
profit on disposal of discontinued operations 736 138 – – 
related nci effects 091 17 478 89 
epsprofit attributable to ordinary shareholders 368 69 7326 1367 
diluted underlying eps 6469 6486  financial statements
119
financial statements
119
7 employee information
2014
number
2013
number
average number of employees
1
united kingdom 24500 24800 
united states of america 7900 8500 
canada 1500 1600 
germany 10500 10500 
nordic countries 4000 4100 
rest of world 5700 5700 
group 54100 55200 
civil 23900 23400 
defence 7000 7900 
aerospace division 30900 31300 
power systems 10700 10700 
marine 6400 6900 
nuclear  energy
2
6100 6300 
land  sea division 23200 23900 
group 54100 55200 
£m £m
group employment costs
3
wages and salaries 2646 2843 
social security costs 362 374 
sharebased payments note 21 21 79 
pensions and other postretirement scheme benefits note 19 328 421
3357 3717 
1
 see page 44
2
 the disposal of the energy business on 1 december 2014 reduced employees by 2000 average 2200
3
 remuneration of key management personnel is shown in note 24 
8 auditors’ remuneration
fees payable to the company’s auditors and its associates were as follows
2014
£m 
2013
£m 
fees payable to the company’s auditors for the audit of the company’s annual financial statements
1
02 02 
fees payable to the company’s auditors and its associates for the audit of the company’s subsidiaries pursuant to legislation 55 56 
total fees payable for audit services 57 58 
fees payable to the company’s auditors and its associates for other services
2

 audit related assurance services
3
11 08
 taxation compliance services 07 08 
 taxation advisory services – 01
 internal audit services – 02 
 all other services 04 10 
79 87 
fees payable in respect of the group’s pension schemes
 audit 02 02 
 taxation compliance services – 01 
1
  the level of fees payable to the company’s auditors for the audit of the company’s annual financial statements reflects the fact that limited incremental work is required in respect of 
the audit of these financial statements rollsroyce plc a subsidiary of the company is also required to prepare consolidated financial statements and the fees payable to the company’s 
auditors for the audit of those financial statements including the audit of the subconsolidation is included in the audit of the company’s subsidiaries pursuant to legislation
2
  as described on pages 72 and 73 in 2014 fees for other services to kpmg in respect of rollsroyce power systems rrps were £09m 2013 £21m following the consolidation of rrps 
on 1 january 2013 the audit committee approved the continuation of engagements already in progress at that date 
3
  th i s i nc l u de s £03m 2013 £03m for the review of the halfyear report financial statements
rollsroyce holdings plc annual report 2014 120
notes to the consolidated financial statements
continued
9 intangible assets
goodwill
£m
certification
costs and
participation 
fees
£m
development
expenditure
£m
contractual
aftermarket
rights
1
£m
customer 
relationships
£m
software
£m
other
£m
total
£m
cost
at 1 january 2013 1111 740 1028 499 45 385 142 3950 
exchange differences 18 3 5 – 3 1 17 3 
additions – 185 110 52 – 69 87 503 
acquisitions of businesses 773 – 508 – 433 – 286 2000 
disposals 5 – 5 – – – – 10
at 1 january 2014 1861 928 1646 551 475 453 532 6446 
reclassifications
2
8 – 4 – 11 19 28 2
exchange differences 112 8 43 – 17 1 28 209
additions – 159 100 93 – 83 42 477 
acquisitions of businesses 1 – – – – – – 1 
disposal of business 67 – – 35 – 11 – 113
at 31 december 2014 1675 1079 1707 609 469 543 518 6600 
accumulated amortisation
at 1 january 2013 9 225 323 295 12 144 41 1049 
exchange differences 1 – 7 – 8 – 5 11
charge for the year
3
– 40 130 28 61 54 91 404 
impairment 17 – 3 – 4 – – 24 
disposals 2 – 5 – – – – 7
at 1 january 2014 23 265 444 323 69 198 137 1459 
reclassifications
2
8 – 4 – 11 5 6 4
exchange differences – – 9 – 4 – 6 19
charge for the year
3
– 46 125 37 42 63 53 366 
impairment 1 – – – – – – 1 
disposal of business – – – – – 7 – 7
at 31 december 2014 16 311 564 360 96 259 190 1796 
net book value
at 31 december 2014 1659 768 1143 249 373 284 328 4804 
at 31 december 2013 1838 663 1202 228 406 255 395 4987 
at 1 january 2013 1102 515 705 204 33 241 101 2901 
1
 previously referred to as ‘recoverable engine costs’
2
  in 2013 following the acquisition of rrps the group revised the classification of intangible assets during 2014 a number of minor inconsistencies in these classifications have been
 identified and amended the net movement of £2m relates to software previously included in property plant and equipment
3
  charged to cost of sales except development costs which are charged to research and development costs
goodwill
in accordance with the requirements of ias 36 impairment of assets goodwill is allocated to the group’s cashgenerating units or  
groups of cashgenerating units that are expected to benefit from the synergies of the business combination that gave rise to the 
goodwill as follows
cashgenerating unit cgu or group of cgus
primary reporting
segment
2014
£m
2013
£m
rollsroyce deutschland ltd  co kg aerospace 215 230 
commercial marine – arising from the acquisitions of vinters limited and  
scandinavian electric holdings as land  sea 552 620 
commercial marine – arising from the acquisition of odim asa land  sea 77 88 
rollsroyce power systems ag land  sea 760 785 
other various 55 115 
1659 1838 financial statements
121
9 intangible assets continued
goodwill has been tested for impairment during 2014 on the following basis
• the carrying values of goodwill have been assessed by reference to value in use these have been estimated using cash flows from  
the most recent forecasts prepared by management which are consistent with past experience and external sources of information  
on market conditions given the longterm and established nature of many of the group’s products product lives are often measured  
in decades these forecasts generally cover the next ten years growth rates for the period not covered by the forecasts are based  
on a range of growth rates 20 – 275 that reflect the products industries and countries in which the relevant cgu or group of  
cgus operate
• the key assumptions for the impairment tests are the discount rate and in the cash flow projections the programme assumptions  
the growth rates and the impact of foreign exchange rates on the relationship between selling prices and costs impairment tests are 
performed using prevailing exchange rates
• the pretax cash flow projections have been discounted at 13 2013 13 based on the group’s weighted average cost of capital 
adjusted for specific risk where appropriate the rate used for rollsroyce power systems ag takes account of the discount rate used  
for the agreement of the put option exercise price
the principal value in use assumptions for goodwill balances considered to be individually significant are
• rollsroyce power systems ag – volume of equipment deliveries pricing achieved and cost escalation these are based on current  
and known future programmes estimates of capture of market share and longterm economic forecasts the principal foreign exchange 
exposures are on translating income in a variety of nonfunctional currencies into euros for the purposes of the impairment only cash 
flows from recent management forecasts for a fiveyear period have been included cash flows beyond five years are assumed to grow  
at 2 2013 management forecast for ten years thereafter 2 growth following the recognition of rrps at fair value on 1 january 2013 
reasonably possible changes in the key assumptions would cause the value in use of the goodwill to fall below its carrying value such 
changes include a reduction in the level of cash generation of 14 or an increase in the assumed discount rate of 4
• rollsroyce deutschland ltd  co kg – volume of engine deliveries flying hours of installed fleet and cost escalation these are based  
on current and known future programmes estimates of customers’ fleet requirements and longterm economic forecasts the principal 
foreign exchange exposure is on translating us dollar income into euros for the purposes of the impairment test only cash flows 
beyond the tenyear forecasts are assumed to grow at 25 2013 25 the directors do not consider that any reasonably possible 
change in the key assumptions would cause the value in use of the goodwill to fall below its carrying value the overall level of business 
would need to reduce by more than 81 to cause an impairment of this balance
• vinters limited – volume of equipment deliveries capture of aftermarket and cost escalation these are based on current and known 
future programmes estimates of customers’ fleet requirements and longterm economic forecasts the principal foreign exchange 
exposures are on translating income in a variety of nonfunctional currencies into norwegian kroner for the purposes of the 
impairment test only cash flows beyond the tenyear forecasts are assumed to grow at 25 2013 25 the directors do not consider 
that any reasonably possible change in the key assumptions would cause the value in use of the goodwill to fall below its carrying value 
the overall level of business would need to reduce by more than 75 to cause an impairment of this balance financial statements
rollsroyce holdings plc annual report 2014 122
notes to the consolidated financial statements
continued
9 intangible assets continued
other intangible assets
certification costs and participation fees development costs and contractual aftermarket rights have been reviewed for impairment  
in accordance with the requirements of ias 36 impairment of assets where an impairment test was considered necessary it has been 
performed on the following basis
• the carrying values have been assessed by reference to value in use these have been estimated using cash flows from the most recent 
forecasts prepared by management which are consistent with past experience and external sources of information on market 
conditions over the lives of the respective programmes
• the key assumptions underlying cash flow projections are assumed market share programme timings unit cost assumptions discount 
rates and foreign exchange rates
• the pretax cash flow projections have been discounted at 11 2013 11 based on the group’s weighted average cost of capital 
reduced where relevant to take account of the lower risk associated with contracted aftermarket flows
• no impairment is required on this basis however a combination of changes in assumptions and adverse movements in variables  
that are outside the group’s control discount rate exchange rate and airframe delays could result in impairment in future years
• as described in the strategic report the group is currently engaged in a number of trent 900 sales campaigns the carrying value of 
intangible assets relating to the trent 900 programme assumes that a proportion of these campaigns are successful if no further orders 
are obtained the carrying value of these intangible assets £142 million may be impaired
10 property plant and equipment
land and 
buildings
£m
plant and 
equipment
£m
aircraft 
and engines
£m
in course of 
construction
£m
total
£m
cost
at 1 january 2013 1072 2889 223 511 4695 
exchange differences 11 28 2 8 49
additions 17 150 83 437 687 
acquisitions of businesses 202 300 – 44 546 
disposals of businesses – 1 – – 1
reclassifications 19 242 21 282 – 
disposalswriteoffs 2 62 1 2 67
at 1 january 2014 1297 3490 324 700 5811 
exchange differences 23 42 1 2 64
additions 24 160 57 427 668 
acquisitions of businesses – – 38 – 38 
disposals of businesses 88 94 77 28 287
reclassifications
1
134 137 32 305 2
disposalswriteoffs 10 51 52 1 114
at 31 december 2014 1334 3600 321 795 6050 
accumulated depreciation
at 1 january 2013 355 1714 62 – 2131 
exchange differences 9 22 1 – 32
charge for the year
2
48 301 23 – 372 
reclassifications 8 8 – – – 
disposals of businesses – 1 – – 1
disposalswriteoffs – 51 – – 51
at 1 january 2014 386 1949 84 – 2419 
exchange differences 8 26 – – 34
charge for the year
2
49 294 31 – 374 
impairment – – – 1 1 
disposals of businesses 29 62 9 – 100
disposalswriteoffs 7 46 3 – 56
at 31 december 2014 391 2109 103 1 2604 
net book value
at 31 december 2014 943 1491 218 794 3446 
at 31 december 2013 911 1541 240 700 3392 
at 1 january 2013 717 1175 161 511 2564 
1
 the net reclassification of £2m relates to software now included in intangible assets
2
  depreciation charged during the year is presented in the income statement or included in the cost of inventory as appropriate financial statements
123
10 property plant and equipment continued
property plant and equipment includes 
2014
£m
2013
£m
net book value of finance leased assets
 land and buildings 6 7 
 plant and equipment 9 4 
 aircraft and engines 43 – 
assets held for use in operating leases
 cost 267 320 
 depreciation 64 79
 net book value 203 241 
capital expenditure commitments 194 317 
net book value of assets held as security for liabilities excluding finance leased assets – – 
cost of fully depreciated assets 792 899 
the group’s share of equity accounted entities’ capital commitments is £82 million 2013 £150 million
11 investments
composition of the group
the principal entities contributing to the group’s financial results are listed on pages 152 and 153 these comprise 54 whollyowned 
subsidiaries and 33 joint ventures which are located in the following countries
at 31 december 2014 at 31 december 2013
whollyowned 
subsidiaries joint ventures
whollyowned 
subsidiaries
nonwholly
owned 
subsidiaries joint ventures
united kingdom 13 8 13 1 9 
australia – – – – 1 
brazil 1 – 1 – – 
canada 1 – 1 – – 
china 2 2 1 1 2 
finland 1 – 1 – – 
france 2 – 2 – – 
germany 6 4 1 4 5 
guernsey 1 – 1 – – 
hong kong 1 1 – 1 1 
india 3 1 3 – 1 
israel – 1 – – 1 
italy 2 – 1 1 – 
malaysia – – – – 1 
netherlands 1 – – 1 – 
norway 2 – 1 1 – 
singapore 2 2 1 1 2 
south africa 1 – – – – 
spain 1 1 – 1 1 
sweden 1 – 1 – – 
turkey 1 – – 1 – 
united states of america 12 13 11 1 13  financial statements
rollsroyce holdings plc annual report 2014 124
notes to the consolidated financial statements
continued
11 investments continued
the nonwholly owned subsidiaries above comprise the rollsroyce power systems group on 7 march 2014 daimler ag announced its 
intention to exercise its put option on its 50 of rollsroyce power systems holding gmbh rrpsh formal notice of this intention was 
served on 24 march 2014 from this date the group has an effective economic interest in rrpsh of 100 and nci of £584 million was 
transferred to retained earnings the group acquired the shares on 26 august 2014 giving it a 100 interest in rrpsh noncontrolling 
interests are as follows
proportion of ownership  
interests held by nci
comprehensive income  
allocated to nci accumulated nci
2014 2013
2014
£m
2013
£m
2014
£m
2013
£m
rollsroyce power systems gmbh – 50 12 11 – 694 
other subsidiaries with nci 1 1 5 4 
11 12 5 698 
summarised financial information for rrpsh is as follows
at 
24 march 
2014
1
£m
at 
3 1 december 
2013
£m
current assets 1529 1776 
noncurrent assets 2511 2567 
current liabilities 974 1035
noncurrent liabilities 1118 1134
equity attributable to rollsroyce shareholders 1364 1480 
noncontrolling interests 584 694 
1
 immediately prior to the exercise of the put option
period to 
24 march 
2014 
£m 
year to 
31 december 
2013 
£m 
revenue 551 2834 
lossprofit for the period 25 21 
 attributable to ordinary shareholders 12 10 
 noncontrolling interests 12 10 
total comprehensive income for the period 69 21 
 attributable to ordinary shareholders 35 11 
 noncontrolling interests 35 11 
dividends paid to noncontrolling interests 76 60
cash flow from operating activities 33 220 
cash flow from investing activities 17 167
cash flow from financing activities 158 97
net cash outflow 142 44 financial statements
125
11 investments continued
equity accounted and other investments
equity accounted other
joint ventures
£m
associates
£m
total
£m
unlisted
£m
at 1 january 2013 1798 2 1800 6 
exchange differences 4 – 4 1 
additions 43 – 43 1 
taxation paid by the group 6 – 6 – 
transfer to subsidiary 1327 – 1327 – 
acquisition of business 30 – 30 20 
share of retained profit 61 – 61 – 
disposals 2 – 2 1
share of oci – may be reclassified to profit or loss 6 – 6 – 
at 1 january 2014 599 2 601 27 
reclassification
1
25 – 25 – 
exchange differences 7 – 7 2
additions 15 2 17 11 
taxation paid by the group 3 – 3 – 
transfer to subsidiary 1 – 1 – 
share of retained profit 23 – 23 – 
disposals 70 – 70 – 
consolidation of previously nonconsolidated subsidiary – – – 5
return of capital 3 – 3 – 
share of oci – may be reclassified to profit or loss 13 – 13 – 
at 31 december 2014 535 4 539 31 
1  
the reclassification relates to an adjustment in the prior year relating to transactions between the group and a joint venture which was included in creditors it has now been
  transferred to investments in joint ventures
reconciliation to the income statement and cash flow statement
continuing operations discontinued operations total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
share of profit after tax 94 149 2 11 96 160
dividends received 71 94 2 5 73 99
share of retained profit 23 55 – 6 23 61
the following joint ventures are considered to be individually material to the group
principal location activity effective interest
alpha partners leasing limited apl uk aero engine leasing 500
hong kong aero engine services limited haesl hong kong aero engine repair and overhaul 450
singapore aero engine services pte limited saesl singapore aero engine repair and overhaul 390
industria de turbo propulsores sa itp spain aero engine component manufacture and maintenance 469 financial statements
rollsroyce holdings plc annual report 2014 126
notes to the consolidated financial statements
continued
11 investments continued
summarised financial information of the group’s individually material joint ventures is as follows
apl haesl saesl itp
2014 
£m
2013 
£m
2014 
£m
2013 
£m
2014 
£m
2013 
£m
2014 
£m
2013 
£m
revenue 105 89 652 898 815 1150 529 528 
profit from continuing operations 39 45 34 67 60 88 24 57 
posttax profit from discontinued operations – – – – – – – – 
profit for the year 39 45 34 67 60 88 24 57 
other comprehensive income – – – – – – – – 
total comprehensive income for the year 39 45 34 67 60 88 24 57 
dividends received during the year 13 11 30 61 56 86 19 24
profit for the year included the following
 depreciation and amortisation 47 40 8 8 5 6 37 37
 interest income – – – – – – 19 12 
 interest expense 15 18 1 1 1 1 12 14
 income tax expense 11 – 7 13 – – 4 15 
current assets 72 85 159 222 207 217 603 672 
noncurrent assets 1171 891 86 79 102 82 525 659 
current liabilities 62 58 61 133 88 95 415 493
noncurrent liabilities 959 757 37 34 106 99 418 461
net assets 222 161 147 134 115 105 295 377 
included in the above
 cash and cash equivalents 11 16 8 5 11 13 94 243 
 current financial liabilities
1
13 8 – – – – 10 3 
 noncurrent financial liabilities
1
815 633 29 27 106 99 282 353
1
 excluding trade and other payables
reconciliation to the carrying amount recognised in the consolidated financial statements
effective interest 500 500 450 450 390 390 469 469
group share of net assets above 111 81 66 60 45 41 138 177 
at the option of the current owner the group has an agreement to purchase the shares in itp that it does not own if the option is 
exercised the price payable would be fair value determined on a basis agreed between the parties taking into account earnings multiples 
and discounted cash flows as the exercise price would be at the fair value of the shares the group does not consider that this derivative 
has a significant fair value
the summarised aggregated results of the group’s share of equity accounted investments is as follows
joint ventures associates total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
profit from continuing operations 94 149 – – 94 149 
profit from discontinued operations 2 11 – – 2 11 
profit for the year 96 160 – – 96 160 
other comprehensive income 13 6 – – 13 6
total comprehensive income for the year 83 154 – – 83 154  financial statements
127
12 inventories
2014
£m
2013
£m
raw materials 553 593 
work in progress 984 1177 
longterm contracts work in progress 22 15 
finished goods 1149 1426 
payments on account 60 108 
2768 3319 
inventories stated at net realisable value 265 447 
amount of inventory writedown 62 89 
reversal of inventory writedown 1 5
13 trade and other receivables
2014
£m
2013
£m
trade receivables 1531 1601 
amounts recoverable on contracts 2684 2239 
amounts owed by joint ventures and associates 309 380 
other receivables 785 637 
prepayments and accrued income 200 235 
5509 5092 
analysed as
financial instruments note 17
 trade receivables and similar items 1981 2118 
 other nonderivative financial assets 671 527 
nonfinancial instruments 2857 2447 
5509 5092 
trade and other receivables expected to be recovered in more than one year
 trade receivables 40 51 
 amounts recoverable on contracts 2444 1751 
 other receivables 61 41 
 prepayments and accrued income 55 84 
2601 1927 
amounts recoverable on contracts include £2492 million 2013 £1901 million of totalcare assets 
14 cash and cash equivalents
2014
£m
2013
£m
cash at bank and in hand 739 982 
moneymarket funds 692 1157 
shortterm deposits 1431 1851 
2862 3990 
overdrafts note 15 – 3
cash and cash equivalents per cash flow statement page 98 2862 3987 
cash held as collateral against third party obligations note 18 42 50 
cash and cash equivalents at 31 december 2014 includes £30 million 2013 £286 million that is not available for general use by the group 
this balance relates to cash held in the group’s captive insurance company and nonwholly owned subsidiaries the principal reason for 
the significant decrease is that power systems is now a wholly owned subsidiary 2013 50 interest   financial statements
rollsroyce holdings plc annual report 2014 128
notes to the consolidated financial statements
continued
15 borrowings
current noncurrent total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
unsecured
overdrafts – 3 – – – 3 
bank loans 12 204 392 412 404 616 
7
3 
8 notes 2016 £200m – – 200 200 200 200 
655 notes 2015 us83m
1
55 – – 55 55 55 
675 notes 2019 £500m
2
– – 547 535 547 535 
2125 notes 2021 €750m
1
– – 615 611 615 611 
3375 notes 2026 £375m
2
– – 395 350 395 350 
secured
obligations under finance leases
3
1 – 44 1 45 1 
68 207 2193 2164 2261 2371 
1
  these notes are the subject of interest rate swap agreements under which the group has undertaken to pay ﬂoating rates of interest and currency swaps which form a fair value hedge 
2
  these notes are the subject of interest rate swap agreements under which the group has undertaken to pay ﬂoating rates of interest which form a fair value hedge 
3
 obligations under ﬁnance leases are secured by related leased assets 
16 trade and other payables
current noncurrent total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
payments received on account
1
1291 1594 860 750 2151 2344 
trade payables 1348 1370 13 16 1361 1386 
amounts owed to joint ventures and associates 235 191 4 – 239 191 
other taxation and social security 109 101 1 – 110 101 
other payables 1756 1820 320 143 2076 1963 
accruals and deferred income 2052 1969 1247 1229 3299 3198 
6791 7045 2445 2138 9236 9183 
1
  includes payments received on account from joint ventures  
and associates 158 180 99 151 257 331 
included within trade and other payables are government grants of £80 million 2013 £100 million during the year £24 million 
2013 £26 million of government grants were released to the income statement
included in accruals and deferred income are deferred receipts from rrsa workshare partners of £244 million 2013 £260 million and 
£687 million 2013 £559 million of totalcare liabilities 
trade and other payables are analysed as follows
2014
£m
2013
£m
financial instruments note 17
 trade payables and similar items 3049 2989 
 other nonderivative financial liabilities 831 806 
nonfinancial instruments 5356 5388 
9236 9183  financial statements
129
17 financial instruments
carrying values and fair values of financial instruments
notes
basis for 
determining 
fair value
assets liabilities total
fair value 
through 
profit or loss
£m
loans and 
receivables
£m
available
 for sale
£m
cash
£m
fair value 
through 
profit or loss
£m
other
£m £m
at 31 december 2014
unlisted noncurrent asset investments 11 a – 31 – – – – 31 
trade receivables and similar items 13 b – 1981 – – – – 1981 
other nonderivative financial assets 13 b – 671 – – – – 671 
derivative financial assets
1
c 129 – – – – – 129 
shortterm investments b – 7 – – – – 7 
cash and cash equivalents 14 b – 1431 692 739 – – 2862 
borrowings 15 d – – – – – 2261 2261
derivative financial liabilities
1
c – – – – 759 – 759
financial rrsas e – – – – – 145 145
c shares b – – – – – 22 22
trade payables and similar items 16 b – – – – – 3049 3049
other nonderivative financial liabilities 16 b – – – – – 831 831
129 4121 692 739 759 6308 1386
at 31 december 2013
unlisted noncurrent asset investments 11 a – 27 – – – – 27 
trade receivables and similar items 13 b – 2118 – – – – 2118 
other nonderivative financial assets 13 b – 527 – – – – 527 
derivative financial assets c 748 – – – – – 748 
shortterm investments b – 321 – – – – 321 
cash and cash equivalents 14 b – 1851 1157 982 – – 3990 
borrowings 15 d – – – – – 2371 2371
derivative financial liabilities c – – – – 295 – 295
exercise price of put option on nci f – – – – – 1858 1858
financial rrsas e – – – – – 167 167
c shares b – – – – – 16 16
trade payables and similar items 16 b – – – – – 2989 2989
other nonderivative financial liabilities 16 b – – – – – 806 806
748 4844 1157 982 295 8207 771
1
  in the event of counterparty default relating to derivative financial assets and liabilities offsetting would apply and financial assets and liabilities held with the same counterparty 
would net off if this occurred with every counterparty total financial assets would be £15m and liabilities £645m
fair values equate to book values for both 2014 and 2013 with the following exceptions 
2014 2013
book value
£m
fair value
£m
book value
£m
fair value
£m
borrowings 2261 2362 2371 2495
financial rrsas 145 152 167 184
the fair value of a financial instrument is the price at which an asset could be exchanged or a liability settled between knowledgeable 
willing parties in an armslength transaction fair values have been determined with reference to available market information at the 
balance sheet date using the methodologies described below
a  these primarily comprise unconsolidated companies where fair value approximates to the book value
b  fair values are assumed to approximate to cost either due to the shortterm maturity of the instruments or because the interest rate of the investments is reset after periods  
not exceeding six months 
c  fair values of derivative financial assets and liabilities are estimated by discounting expected future contractual cash ﬂows using prevailing interest rate curves amounts 
denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date these financial instruments are included on the balance sheet at fair  
value derived from observable market prices level 2 as defined by ifrs 13 fair value measurement
d  borrowings are carried at amortised cost amounts denominated in foreign currencies are valued at the exchange rate prevailing at the balance sheet date
e  the fair value of rrsas is estimated by discounting expected future cash flows the contractual cash flows are based on future trading activity which is estimated based  
on latest forecasts level 3 as defined by ifrs 13
f  the fair value of the put option on nci is determined in accordance with the contractual terms which requires averaging three valuations covering forecasts of the business 
performance and external metrics of comparable business and transactions level 3 as defined by ifrs 13ifrs 13 defines a three level valuation hierarchy
level 1 – quoted prices for similar instruments
level 2 – directly observable market inputs other than level 1 inputs and
level 3 – inputs not based on observable market data financial statements
rollsroyce holdings plc annual report 2014 130
notes to the consolidated financial statements
continued
17 financial instruments continued
carrying values of other financial assets and liabilities
foreign 
exchange 
contracts
£m
commodity
 contracts
£m
interest rate 
contracts
£m
total
 derivatives
£m
exercise price
 of put option
 on nci
£m
financial 
rrsas
£m
c shares
£m
total
£m
at 31 december 2014
noncurrent assets 28 – 79 107 – – – 107 
current assets 22 – – 22 – – – 22 
assets 50 – 79 129 – – – 129 
current liabilities 144 21 – 165 – 22 22 209
noncurrent liabilities 545 22 27 594 – 123 – 717
liabilities 689 43 27 759 – 145 22 926
639 43 52 630 – 145 22 797
at 31 december 2013
noncurrent assets 631 – 43 674 – – – 674 
current assets 72 2 – 74 – – – 74 
assets 703 2 43 748 – – – 748 
current liabilities 63 16 1 80 1858 22 16 1976
noncurrent liabilities 142 25 48 215 – 145 – 360
liabilities 205 41 49 295 1858 167 16 2336
498 39 6 453 1858 167 16 1588
derivative financial instruments
the group uses various ﬁnancial instruments to manage its exposure to movements in foreign exchange rates where the effectiveness  
of a hedging relationship in a cash flow hedge is demonstrated changes in the fair value that are deemed effective are included in the 
cash flow hedge reserve and released to match actual payments on the hedged item the group uses commodity swaps to manage its 
exposure to movements in the price of commodities jet fuel and base metals to hedge the currency risk associated with a borrowing 
denominated in us dollars the group has currency derivatives designated as part of fair value hedges the group uses interest rate swaps 
forward rate agreements and interest rate caps 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 total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
at 1 january 498 272 39 13 6 88 453 347 
business acquisitions – 4 – 1 – – – 3 
movements in fair value hedges
1
3 3 – – 58 91 61 88
movements in other derivative contracts
2
1125 284 15 34 – – 1140 250 
contracts settled
3
15 65 11 9 – 3 4 59
at 31 december 639 498 43 39 52 6 630 453 
1
 loss on related hedged items £61m 2013 £88m gain
2
 included in financing 
3
  2013 included £17m contracts settled in fair value hedges contracts settled in 2014 include a loss of £76m in relation to contracts put in place to hedge the settlement  
of the put option on rrps
nonderivative other financial liabilities
the group had agreed a put option with daimler ag such that daimler could sell its interest in rollsroyce power systems holding gmbh 
to the group daimler ag exercised this option on 24 march 2014 and the group acquired daimler’s 50 share of rrpsh on 26 august 2014 
prior to this the present value of the exercise value of this option was included as a financial liability 
the group 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  financial statements
131
17 financial instruments continued
movements in the carrying values were as follows
put option on noncontrolling 
interests financial rrsas
2014
£m
2013
£m
2014
£m
2013
£m
at 1 january 1858 167 167 193
business acquisitions – 2 – – 
additions – 1432 – – 
exchange adjustments included in oci – – 3 4
financing charge
1 
– – 5 9
excluded from underlying profit
 financing charge
1
2 – – –
 changes in put option exercise price
1
166 212 – –
 changes in forecast payments
1 
– – – 2 
 exchange adjustments
1 
89 45 8 4 
cash paid to partners – – 32 33 
settlement of put option 1937 – – –
at 31 december – 1858 145 167
1
 included in financing
risk management policies and hedging activities 
the principal ﬁnancial risks to which the group is exposed are foreign currency exchange rate risk liquidity risk credit risk interest rate 
risk and commodity price risk the board has approved policies for the management of these risks
foreign currency exchange rate risk – the group has signiﬁcant cash ﬂows most signiﬁcantly us dollars followed by the euro 
denominated in currencies other than the functional currency of the relevant trading entity to manage its exposures to changes in values 
of future foreign currency cash ﬂows so as to maintain relatively stable longterm foreign exchange rates on settled transactions the 
group enters into derivative forward foreign currency transactions for accounting purposes these derivative contracts are not 
designated as hedging instruments
the group also has exposures to the fair values of nonderivative ﬁnancial instruments denominated in foreign currencies to manage the 
risk of changes in these fair values the group enters into derivative forward foreign exchange contracts which are designated as fair value 
hedges for accounting purposes
the group regards its interests in overseas subsidiary companies as longterm investments the group aims to match its translational 
exposures by matching the currencies of assets and liabilities where appropriate foreign currency ﬁnancial liabilities may be designated 
as hedges of the net investment
liquidity risk – the group’s policy is to hold ﬁnancial investments and maintain undrawn committed facilities at a level sufﬁcient to ensure 
that the group has available funds to meet its mediumterm capital and funding obligations and to meet any unforeseen obligations and 
opportunities the group holds cash and shortterm investments which together with the undrawn committed facilities enable the 
group to manage its liquidity risk 
credit risk – the group is exposed to credit risk to the extent of nonpayment by either its customers or the counterparties of its ﬁnancial 
instruments the effective monitoring and controlling of credit risk is a key component of the group’s risk management activities the 
group has credit policies covering both trading and ﬁnancial exposures credit risks arising from treasury activities are managed by a 
central treasury function in accordance with the group credit policy the objective of the policy is to diversify and minimise the group’s 
exposure to credit risk from its treasury activities by ensuring the group transacts strictly with ‘bbb’ or higher rated financial institutions 
based on preestablished limits per financial institution at the balance sheet date there were no signiﬁcant concentrations of credit risk 
to individual customers or counterparties the maximum exposure to credit risk at the balance sheet date is represented by the carrying 
value of each ﬁnancial asset including derivative ﬁnancial instruments
interest rate risk – the group’s interest rate risk is primarily in relation to its ﬁxed rate borrowings fair value risk ﬂoating rate borrowings 
and cash and cash equivalents cash ﬂow risk interest rate derivatives are used to manage the overall interest rate proﬁle within the 
group policy which is to maintain a higher proportion of net debt at floating rates of interest as a natural hedge to the net cash position 
these are designated as either fair value or cash ﬂow hedges as appropriate financial statements
rollsroyce holdings plc annual report 2014 132
notes to the consolidated financial statements
continued
17 financial instruments continued
commodity risk – the group has exposures to the price of jet fuel and base metals arising from business operations to minimise its cash 
ﬂow exposures to changes in commodity prices the group enters into derivative commodity transactions for accounting purposes these 
derivative contracts are not designated as hedging instruments
other price risk – the group’s cash equivalent balances represent investments in money market instruments with a term of up to three 
months the group does not consider that these are subject to signiﬁcant price risk
derivative financial instruments
the nominal amounts analysed by year of expected maturity and fair values of derivative financial instruments are as follows
expected maturity fair value
nominal
amount
£m
within
one year
£m
between 
one and
five years
£m
between
two and
five years
£m
after
five years
£m
assets
£m
liabilities
£m
at 31 december 2014
foreign exchange contracts
 fair value hedges 46 46 – – – 6 – 
 nonhedge accounted 20889 5431 4793 10665 – 44 689
interest rate contracts
 fair value hedges 1512 53 – 500 959 74 22
 nonhedge accounted 2 2 – – – 5 5
commodity contracts
 nonhedge accounted 240 79 62 71 28 – 43
22689 5611 4855 11236 987 129 759
at 31 december 2013
foreign exchange contracts
 fair value hedges 46 – 46 – – 3 – 
 nonhedge accounted 19654 4759 4530 9493 872 700 205
interest rate contracts
 fair value hedges 1550 – 50 – 1500 43 48
 nonhedge accounted 5 – 5 – – – 1
commodity contracts
 nonhedge accounted 262 79 62 80 41 2 41
21517 4838 4693 9573 2413 748 295
as described above all derivative ﬁnancial instruments are entered into for risk management purposes although these may not  
be designated into hedging relationships for accounting purposes
currency analysis 
derivative financial instruments related to foreign exchange risks are denominated in the following currencies 
currencies purchased forward
sterling
£m
us dollar
£m
euro
£m
other
£m
total
£m
at 31 december 2014
currencies sold forward
 sterling – 429 – 199 628 
 us dollar 16659 – 2014 938 19611 
 euro 150 61 – 185 396 
 other 167 9 114 10 300 
at 31 december 2013
currencies sold forward
 sterling – 429 – 10 439 
 us dollar 15936 – 2036 913 18885 
 euro 4 – – 249 253 
 other 22 23 75 3 123  financial statements
133
17 financial instruments continued
other derivative financial instruments are denominated in the following currencies
2014
£m 
2013
£m 
sterling 877 880 
us dollar 292 300 
euro 584 637 
nonderivative financial instruments are denominated in the following currencies
sterling
£m
us dollar
£m
euro
£m
other
£m
total
£m
at 31 december 2014
unlisted noncurrent investments – – 30 1 31 
trade receivables and similar items 232 1180 479 90 1981 
other nonderivative financial assets 400 53 101 117 671 
shortterm investments – – – 7 7 
cash and cash equivalents 513 1404 619 326 2862 
assets 1145 2637 1229 541 5552 
borrowings 1341 101 819 – 2261
financial rrsas – 97 48 – 145
c shares 22 – – – 22
trade payables and similar items 1489 887 545 128 3049
other nonderivative financial liabilities 248 333 161 89 831
liabilities 3100 1418 1573 217 6308
1955 1219 344 324 756
at 31 december 2013
unlisted noncurrent investments – – 26 1 27 
trade receivables and similar items 199 995 829 95 2118 
other nonderivative financial assets 289 48 89 101 527 
shortterm investments 282 – 4 35 321 
cash and cash equivalents 1619 1080 980 311 3990 
assets 2389 2123 1928 543 6983 
borrowings 1490 55 826 – 2371
exercise price of put option on nci – – 1858 – 1858
financial rrsas – 114 53 – 167
c shares 16 – – – 16
trade payables and similar items 1501 641 653 194 2989
other nonderivative financial liabilities 208 328 158 112 806
liabilities 3215 1138 3548 306 8207
826 985 1620 237 1224 financial statements
rollsroyce holdings plc annual report 2014 134
notes to the consolidated financial statements
continued
17 financial instruments continued
currency exposures
the group’s actual currency exposures after taking account of derivative foreign currency contracts which are not designated as hedging 
instruments for accounting purposes are as follows
functional currency of group operations
sterling
£m
us dollar
£m
euro
£m
other
£m
total
£m
at 31 december 2014
sterling – 28 2 35 65 
us dollar 2 – 1 8 5 
euro 2 5 – 11 18 
other 5 19 6 1 31 
at 31 december 2013
sterling
1
– 13 1855 12 1830
us dollar 8 – – 7 15 
euro 1 2 – – 3
other 5 41 11 4 21 
1
  included in the 2013 £1855m liability euro currency exposure was a liability of £1858m relating to the put option on daimler’s interest in rollsroyce power systems holding gmbh 
– see page 130
ageing beyond contractual due date of financial assets
the ageing beyond contractual due date of the group’s financial assets is
within
terms
£m
up to
three
months
overdue
£m
between
three
months and
one year
overdue
£m
more than
one year
overdue
£m
total
£m
at 31 december 2014
unlisted noncurrent asset investments 31 – – – 31 
trade receivables and similar items 1657 206 104 14 1981 
other nonderivative financial assets 667 4 – – 671 
derivative financial assets 129 – – – 129 
shortterm investments 7 – – – 7 
cash and cash equivalents 2862 – – – 2862 
5353 210 104 14 5681 
at 31 december 2013
unlisted noncurrent asset investments 27 – – – 27 
trade receivables and similar items 1769 240 90 19 2118 
other nonderivative financial assets 523 1 1 2 527 
derivative financial assets 748 – – – 748 
shortterm investments 321 – – – 321 
cash and cash equivalents 3990 – – – 3990 
7378 241 91 21 7731  financial statements
135
17 financial instruments continued
contractual maturity analysis of financial liabilities 
gross values
within
one year
£m
between
one and
two years
£m
between
two and
five years
£m
after
five years
£m
discounting
£m
carrying
value
£m
at 31 december 2014
borrowings 148 385 214 1880 366 2261
derivative financial liabilities 174 115 324 181 35 759
financial rrsas 17 19 72 52 15 145
c shares 22 – – – – 22
trade payables and similar items 3012 32 2 3 – 3049
other nonderivative financial liabilities 650 95 20 66 – 831
4023 646 632 2182 416 7067
at 31 december 2013
borrowings 290 140 609 1894 562 2371
derivative financial liabilities 87 76 146 90 104 295
exercise price of put option on nci 1858 – – – – 1858
financial rrsas 33 34 65 75 40 167
c shares 16 – – – – 16
trade payables and similar items 2972 17 – – – 2989
other nonderivative financial liabilities 751 28 16 11 – 806
6007 295 836 2070 706 8502
interest rate risk
in respect of income earning ﬁnancial assets and interest bearing ﬁnancial liabilities the following table indicates their effective interest 
rates and the periods in which they reprice the value shown is the carrying amount
at 31 december 2014
period in which interest  
rate reprices
effective 
interest rate
total
£m
6 months
or less
£m
612 months
£m
shortterm investments
1
7 5 2 
cash and cash equivalents
2
2862 2862 – 
unsecured bank loans
other borrowings 12 1 – 
interest rate swaps 58156 – 2 2
£200m floating rate loan gbp libor  0267 – – – 
£200m floating rate loan gbp libor  126 200 200 – 
€125m fixed rate loan 26000 97 – – 
€75m fixed rate loan 20600 59 – – 
€50m fixed rate loan 23500 36 – – 
unsecured bond issues
7
3 
8 notes 2016 £200m 73750 200 – – 
655 notes 2015 us83m 65500 55 – 55
effect of interest rate swaps usd libor  124 – 55 55 
675 notes 2019 £500m 67500 547 – – 
effect of interest rate swaps gbp libor  29824 – 547 – 
2125 notes 2021 €750m 21250 615 – – 
effect of interest rate swaps gbp libor  07005 – 615 – 
3375 notes 2026 £375m 33750 395 – – 
effect of interest rate swaps gbp libor  08930 – 395 – 
other secured
obligations under finance leases 41089 45 1 1
608 
1
 interest on the shortterm investments are at fixed rates
2
 cash and cash equivalents comprises bank balances and demand deposits and earns interest at rates based on daily deposit rates financial statements
rollsroyce holdings plc annual report 2014 136
notes to the consolidated financial statements
continued
17 financial instruments continued
at 31 december 2013
period in which interest  
rate reprices
effective 
interest rate
total
£m
6 months
or less
£m
612 months
£m
shortterm investments
1
321 318 3 
cash and cash equivalents
2
3990 3990 – 
unsecured bank loans –
other borrowings 10 5 – 
interest rate swaps 53225 – 5 – 
£200m floating rate loan gbp libor  0267 200 200 – 
£200m floating rate loan gbp libor  126 200 200 – 
€125m fixed rate loan 26000 104 – – 
€75m fixed rate loan 20600 63 – – 
€50m fixed rate loan 23500 42 – – 
unsecured bond issues
7
3 
8 notes 2016 £200m 73750 200 – – 
655 notes 2015 us83m 65500 55 – – 
effect of interest rate swaps usd libor  124 – 55 – 
675 notes 2019 £500m 67500 535 – – 
effect of interest rate swaps gbp libor  29824 – 535 – 
2125 notes 2021 €750m 21250 611 – – 
effect of interest rate swaps gbp libor  07005 – 611 – 
3375 notes 2026 £375m 33750 350 – – 
effect of interest rate swaps gbp libor  08930 – 350 – 
other secured
obligations under finance leases 50000 1 1 – 
1940 
1
 interest on the shortterm investments are at fixed rates
2
 cash and cash equivalents comprises bank balances and demand deposits and earns interest at rates based on daily deposit rates
some of the group’s borrowings are subject to the group meeting certain obligations including customary ﬁnancial covenants if the 
group fails to meet its obligations these arrangements give rights to the lenders upon agreement to accelerate repayment of the 
facilities there are no rating triggers contained in any of the group’s facilities that could require the group to accelerate or repay any 
facility for a given movement in the group’s credit rating 
in addition the group has £1277 million of undrawn committed borrowing facilities 2013 £1250 million expiring after two years
sensitivity analysis
sensitivities at 31 december all other variables held constant – impact on profit after tax and equity
2014
£m
2013
£m
sterling 10 weaker against the us dollar 1336 1177
sterling 10 stronger against the us dollar 1093 963 
euro 10 weaker against the us dollar 147 128
euro 10 stronger against the us dollar 123 100 
sterling 10 weaker against the euro 15 95
sterling 10 stronger against the euro 12 78 
commodity prices 10 lower 15 16
commodity prices 10 higher 15 16 
at 31 december 2014 the group had no material sensitivity to changes in interest rates on that date the main interest rate sensitivity for  
the group arises as a result of the gross up of net cash and this is mitigated as described under the interest rate risk management policies  
on page 131 financial statements
137
17 financial instruments continued
c shares and payments to shareholders
the company issues noncumulative redeemable preference shares c shares as an alternative to paying a cash dividend c shares  
in respect of a year are issued in the following year shareholders are able to redeem any number of their c shares for cash any c shares 
retained attract a dividend of 75 of libor on the 01p nominal value of each share paid on a twiceyearly basis and have limited voting 
rights the company has the option to compulsorily redeem the c shares at any time if the aggregate number of c shares in issue is less 
than 10 of the aggregate number of c shares issued or on the acquisition or capital restructuring of the company
movements in the c shares during the year were as follows
2014 2013
millions
nominal
value
£m millions
nominal
value
£m
issued and fully paid
at 1 january 16286 16 10418 10 
issued 413669 414 366041 366 
redeemed 407950 408 360173 360
at 31 december 22005 22 16286 16 
payments to shareholders in respect of the year represent the value of c shares to be issued in respect of the results for the year  
issues of c shares were declared as follows 
2014 2013
pence
per share £m
pence
per share £m
interim 90 170 86 162 
final 141 265 134 252 
231 435 220 414
18 provisions for liabilities and charges
at
1 january
2014
£m
exchange
differences
£m
disposals
 of
businesses
£m
unused
 amounts
reversed
£m
charged to
income
statement
£m
utilised
£m
at
31 december
2014
£m
warranty and guarantees 419 18 14 27 181 115 426 
contract loss 67 1 11 9 16 21 41 
restructuring 25 1 – – 121 25 122 
customer financing 73 – – 34 15 7 47 
insurance 62 – – 13 35 19 65 
other 87 3 9 13 76 32 106 
733 21 34 96 444 219 807 
current liabilities 348 433 
noncurrent liabilities 385 374 
provisions for warranties and guarantees primarily relate to products sold and generally cover a period of up to three years
provisions for contract loss and restructuring are generally expected to be utilised within two years 
in connection with the sale of its products the group will on some occasions provide ﬁnancing support for its customers – generally  
in respect of civil aircraft the group’s commitments relating to these ﬁnancing arrangements are spread over many years relate  
to a number of customers and a broad product portfolio and are generally secured on the asset subject to the financing these include 
commitments of us18 billion to provide borrowing facilities to enable customers to purchase aircraft of which approximately 
us300 million could be called in 2015 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 consequently the directors do not consider that there is a significant exposure arising from  
the provision of these facilities financial statements
rollsroyce holdings plc annual report 2014 138
notes to the consolidated financial statements
continued
18 provisions for liabilities and charges continued
customer financing provisions cover guarantees provided for asset value andor financing these guarantees the risks arising and the 
process used to assess the extent of the risk are described under the heading ‘customer financing’ in the financial review on page 31  
it is estimated that the provision will be utilised as follows
2014
£m
2013
£m
potential claims with specific claim dates
 in one year or less 32 29 
 in more than one year but less than five years 11 38 
 in more than five years 4 5 
potential claims that may arise at any time up to the date of expiry of the guarantee
 up to one year – 1 
47 73 
commitments on delivered aircraft in excess of the amounts provided are shown in the table below these are reported on a discounted 
basis at the group’s borrowing rate to reﬂect better the time span over which these exposures could arise these amounts do not represent 
values that are expected to crystallise the commitments are denominated in us dollars as the group does not generally adopt cash flow 
hedge accounting for future foreign exchange transactions this amount is reported together with the sterling equivalent at the reporting 
date spot rate the values of aircraft providing security are based on advice from a specialist aircraft appraiser
2014 2013
£m m £m m
gross commitments 388 605 356 589 
value of security
1
245 382 217 360
indemnities 84 132 80 132
net commitments 59 91 59 97 
net commitments with security reduced by 20
2
90 140 78 129 
1
 security includes unrestricted cash collateral of 42 66 50 83 
2
 although sensitivity calculations are complex the reduction of relevant security by 20 illustrates the sensitivity to changes in this assumption
there are also commitments in respect of undelivered aircraft but it is not considered practicable to estimate these as deliveries  
can be many years in the future and the relevant ﬁnancing will only be put in place at the appropriate time
the group’s captive insurance company retains a portion of the exposures it insures on behalf of the remainder of the group significant 
delays occur in the notification and settlement of claims and judgement is involved in assessing outstanding liabilities the ultimate cost 
and timing of which cannot be known with certainty at the balance sheet date the insurance provisions are based on information 
currently available however it is inherent in the nature of the business that ultimate liabilities may vary provisions for outstanding  
claims are established to cover the outstanding expected liability as well as claims incurred but not yet reported
other provisions comprise a number of liabilities with varying expected utilisation rates financial statements
139
19 postretirement benefits
the group operates a number of defined benefit and defined contribution schemes
uk defined benefit schemes are funded with the assets held in separate trustee administered funds employees are entitled  
to retirement benefits based on either their final or career average salaries and length of service
overseas defined benefit schemes are a mixture of funded and unfunded plans and provide benefits in line with local practice 
additionally in the us and to a lesser extent in some other countries the group’s employment practices include the provision of 
healthcare and life insurance benefits for retired employees these schemes are unfunded
the valuations of the defined benefit schemes are based on the most recent funding valuations where relevant updated by the scheme 
actuaries to 31 december 2014
the defined benefit schemes expose the group to actuarial risks such as longevity interest rate inflation and investment risks in the uk 
and in the principal us pension schemes the group has adopted investment policies to mitigate some of these risks this involves 
investing a significant proportion of the schemes’ assets in liability driven investment ldi portfolios which hold investments designed to 
offset interest rate and inflation rate risks in addition in the uk the rollsroyce pension fund has invested in a longevity swap which is 
designed to offset longevity risks in respect of existing pensioners
amounts recognised in the income statement
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
defined benefit schemes
current service cost and administrative expenses 156 45 201 153 55 208 
pastservice creditcost 18 13 31 66 5 71 
138 32 170 219 60 279 
defined contribution schemes
1
32 97 129 30 86 116 
operating cost 170 129 299 249 146 395 
net financing incomecharge in respect of defined benefit schemes 11 40 29 12 38 26 
total income statement charge 159 169 328 237 184 421 
1
 the 2013 reported figures did not include defined contribution costs for rollsroyce power systems ag
the operating cost is charged as follows
defined benefit defined contribution total
2014
£m
2013
£m
2014
£m
2013
£m
2014
£m
2013
£m
cost of sales – included in underlying profit 117 141 84 74 201 215 
commercial and administrative costs 21 104 23 23 44 127 
research and development 27 28 17 14 44 42 
165 273 124 111 289 384 
discontinued operations 5 6 5 5 10 11 
170 279 129 116 299 395  financial statements
rollsroyce holdings plc annual report 2014 140
notes to the consolidated financial statements
continued
19 postretirement benefits continued
the group operates a paysave scheme in the uk this is a salary sacrifice scheme under which employees elect to stop making employee 
contributions and the group makes additional contributions in return for a reduction in gross contractual pay as a result there is a 
decrease in wages and salaries and a corresponding increase in pension costs of £35 million 2013 £37 million in the year 
net financing comprises
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
financing on scheme obligations 390 64 454 371 59 430 
financing on scheme assets 427 24 451 431 21 452
financing on unrecognised surpluses and minimum funding liability 26 – 26 48 – 48 
net financing incomecharge in respect of defined benefit schemes 11 40 29 12 38 26 
financing income on scheme surpluses 13 – 13 16 1 17
financing costs on scheme deficits 2 40 42 4 39 43 
amounts recognised in oci in respect of defined benefit schemes
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
actuarial gains and losses arising from demographic assumptions 23 17 6 87 12 99
actuarial gains and losses arising from financial assumptions 1099 228 1327 200 116 84
actuarial gains and losses arising from experience adjustments 343 17 360 65 31 96 
return on scheme assets excluding financing income 2258 55 2313 363 42 405
movement in unrecognised surplus and related finance cost 513 – 513 407 – 407 
movement in minimum funding liability and related finance cost 47 – 47 133 – 133 
1399 207 1192 45 93 48 
amounts recognised in the balance sheet in respect of defined benefit schemes
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
present value of funded obligations 10606 664 11270 9046 558 9604
fair value of scheme assets 12341 593 12934 9776 504 10280 
net assetliability on funded schemes 1735 71 1664 730 54 676 
present value of unfunded obligations – 1109 1109 – 935 935
unrecognised surplus
1
– – – 488 – 488
minimum funding liability
2
– – – 46 – 46
net assetliability recognised in the balance sheet 1735 1180 555 196 989 793
postretirement scheme surpluses 1735 5 1740 242 6 248 
postretirement scheme deficits – 1185 1185 46 995 1041
1
  where a surplus has arisen on a scheme in accordance with ias 19 and ifric 14 the surplus is recognised as an asset only if it represents an unconditional economic benefit available 
to the group in the future any surplus in excess of this benefit is not recognised in the balance sheet during 2014 the rules of one scheme were amended which removed the 
restriction on recognising the surplus
2
  a minimum funding liability arises where the statutory funding requirements require future contributions in respect of past service that will result in a future unrecognisable surplus
overseas schemes are located in the following countries
2014 2013
assets
£m
obligations
£m
net
£m
assets
£m
obligations
£m
net
£m
canada 160 208 48 135 181 46
germany – 592 592 – 500 500
us pension schemes 414 508 94 347 420 73
us healthcare schemes – 423 423 – 352 352
other 19 42 23 22 40 18
net assetliability recognised in the balance sheet 593 1773 1180 504 1493 989 financial statements
141
19 postretirement benefits continued
defined benefit schemes
assumptions
significant actuarial assumptions for uk schemes weighted average by size of the obligation used at the balance sheet date were 
as follows 
uk schemes 2014 2013
discount rate 36 44
inflation assumption
 
rpi
1
32 35
rate of increase in salaries 42 45
male life expectancy from age 65 – current pensioner 225 years 225 years
 – future pensioner currently aged 45 241 years 242 years
1
 the consumer price index is assumed to be 11 lower
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 in prior years only bonds with an average  
aa rating by the three main agencies were included the population of such bonds has reduced and limited the reliability of the derived 
yield curve consequently this has been changed so that bonds rated aa by at least one agency are included the impact of this change  
is to increase the discount rate at 31 december 2014 by approximately 03
the inflation assumption is determined by the market implied assumption based on the yields on longterm indexed linked government 
securities and increases in salaries are based on actual experience allowing for promotion of the real increase above inflation
the mortality assumptions adopted for the uk pension schemes are derived from the sap actuarial tables with future improvements  
in line with the cmi 2014 core projections and longterm improvements of 125 where appropriate these are adjusted to take account  
of the relevant scheme’s actual experience 
other assumptions have been set on advice from the relevant 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 relevant 
scheme combined with the inflation assumption where the increase is capped 
assumptions for overseas schemes are less significant and are based on advice from local actuaries the principal assumptions are
overseas schemes 2014 2013
discount rate 33 45
inflation assumption
 
22 23
longterm healthcare cost trend rate 50 37
male life expectancy from age 65 – current pensioner 211 years 196 years
 – future pensioner currently aged 45 233 years 207 years financial statements
rollsroyce holdings plc annual report 2014 142
notes to the consolidated financial statements
continued
19 postretirement benefits continued
changes in present value of defined benefit obligations
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
at 1 january 9046 1493 10539 8569 1178 9747
exchange differences – 7 7 – 16 16 
current service cost 151 44 195 147 53 200
pastservice cost 18 16 34 66 4 70
finance cost 390 63 453 371 59 430
contributions by employees 4 5 9 4 4 8
benefits paid out 376 71 447 334 63 397 
acquisition of businesses – – – 1 402 403
disposal of businesses 10 16 26 – – – 
actuarial lossesgains 1419 266 1685 222 134 88
settlement curtailment – 6 6 – – – 
other movements – 4 4 – 6 6
at 31 december 10606 1773 12379 9046 1493 10539
funded schemes 10606 664 11270 9046 558 9604
unfunded schemes – 1109 1109 – 935 935
the defined benefit obligations are in respect of
 active plan participants 4170 974 5144 3492 849 4341
 deferred plan participants 2009 97 2106 1647 74 1721
 pensioners 4427 702 5129 3907 570 4477
weighted average duration of obligations years 17 16 17 16 13 16 
changes in fair value of scheme assets
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
at 1 january 9776 504 10280 9794 534 10328 
exchange differences – 18 18 – 19 19
administrative expenses 5 1 6 6 2 8
financing 427 24 451 431 21 452 
return on plan assets excluding financing 2258 55 2313 363 42 405
contributions by employer 257 65 322 249 66 315 
contributions by employees 4 5 9 4 4 8 
benefits paid out 376 71 447 334 63 397
acquisition of businesses – – – 1 5 6 
settlementscurtailment – 6 6 – – – 
at 31 december 12341 593 12934 9776 504 10280 
total return on scheme assets 2685 79 2764 68 21 47  financial statements
143
19 postretirement benefits continued
fair value of scheme assets at 31 december
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
sovereign debt 7282 167 7449 5929 231 6160 
derivatives on sovereign debt 2622 2 2620 987 2 985
corporate debt instruments 2053 237 2290 1045 190 1235 
interest rate swaps 4218 – 4218 1361 – 1361 
inflation swaps 360 – 360 13 – 13
cash and similar instruments 193 127 320 257 44 301 
liability driven investment ldi portfolios
1
10764 533 11297 7592 467 8059 
longevity swap
2
10 – 10 3 – 3 
listed equities 787 3 790 994 3 997 
unlisted equities 216 – 216 172 – 172 
sovereign debt 105 4 109 215 4 219 
corporate debt instruments 15 – 15 540 4 544 
cash 166 32 198 253 4 257 
other 278 21 299 7 22 29 
at 31 december 12341 593 12934 9776 504 10280 
1
  a portfolio of gilt and swap contracts backed by libor generating assets that is designed to hedge the majority of the interest rate and inflation risks associated with the schemes’ 
obligations
2
  under the longevity swap the rollsroyce pension fund rrpf has agreed an average life expectancy of pensioners with a counterparty if pensioners live longer than expected the 
counterparty will make payments to the rrpf to offset the additional cost of paying pensioners if the reverse applies the cost of paying pensioners will be reduced but the scheme will 
be required to make payments to the counterparty the longevity swap is valued on an external fair market basis rather than using the same assumptions as used for the valuation of 
the scheme’s liabilities 
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 the longevity swap is valued by the scheme actuaries based on the difference between the agreed longevity assumptions at 
inception and actual longevity experience all other fair values are provided by the fund managers where available the fair values are 
quoted prices eg listed equity sovereign debt and corporate bonds unlisted investments private equity are included at values provided 
by the fund manager in accordance with relevant guidance other significant assets are valued based on observable inputs such as yield 
curves
movements in unrecognised surplus and minimum funding liability
2014 2013
uk
schemes
£m
overseas
schemes
£m
total
£m
uk
schemes
£m
overseas
schemes
£m
total
£m
at 1 january 534 – 534 1026 – 1026
movements in unrecognised surplus through oci 513 – 513 407 – 407 
movements in minimum funding liability through oci 47 – 47 133 – 133 
related finance costs 26 – 26 48 – 48
at 31 december – – – 534 – 534
future contributions
the group expects to contribute approximately £250 million to its defined benefit schemes in 2015
in the uk the funding is set on the basis of a triennial funding valuation by the actuaries for which the assumptions may differ from those 
above in particular the discount rate used to value the obligations takes account of the investment strategy rather than being based on 
market yields of aa corporate bonds as a result of these valuations the group and the scheme trustees agree a schedule of contributions 
soc which sets out the required contributions from the employer and employees for current service where the scheme is in deficit the 
soc also includes required contributions from the employer to eliminate the deficit the most recent agreed triennial valuations for the 
principal schemes are
obligations at 
31 december 2014
£m valuation date
rollsroyce pension fund 7330 31 march 2012
rollsroyce group pension scheme 1779 5 april 2013
vickers group pension scheme 696 31 march 2013 financial statements
rollsroyce holdings plc annual report 2014 144
notes to the consolidated financial statements
continued
19 postretirement benefits continued
sensitivities
the calculations of the defined benefit obligations are sensitive to the assumptions set out above the following table summarises how the 
estimated impact of a change in a significant assumption would affect the uk defined benefit obligation at 31 december 2014 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 are designed to hedge the risks from interest rates inflation on an 
economic basis and in the rollsroyce pension fund in the uk the longevity of pensioners where appropriate the table also includes the 
corresponding movement in the value of the plan assets
£m
reduction in the discount rate of 025
1
obligation 473
plan assets ldi portfolio 591 
increase in inflation of 025 obligation 241
plan assets ldi portfolio 209 
increase in real increase in salaries of 025 obligations 95
one year increase in life expectancy obligations 250
1
  the difference between the sensitivities on obligations and plan assets arises largely due to differences in the methods used to value the obligations for accounting and economic 
purposes on an economic basis the correlation is approximately 96
20 share capital
nonequity equity
special
share
of £1
nominal
value
£m
ordinary 
shares
of 20p each 
millions
nominal
value
£m
issued and fully paid
at 1 january 2013 1 – 1872 374 
proceeds from shares issued for share option schemes – – 8 2
at 31 december 2013 1 – 1880 376
shares issued to share trust – – 10 2
purchase and cancellation of ordinary shares – – 8 2
at 31 december 2014 1 – 1882 376
the rights attaching to each class of share are set out on page 162
in accordance with ias 32 financial instruments presentation the company’s noncumulative redeemable preference shares c shares are 
classified as financial liabilities accordingly movements in c shares are included in note 17 financial statements
145
21 sharebased payments
effect of sharebased payment transactions on the group’s results and financial position
2014
£m 
2013
£m 
total charge recognised for equitysettled sharebased payments transactions 26 61 
total creditcharge recognised for cashsettled sharebased payments transactions 5 18 
sharebased payments recognised in the consolidated income statement 21 79 
liability for cashsettled sharebased payment transactions 13 19 
a description of the sharebased payment plans is included in the directors’ remuneration report on pages 77 to 89
movements in the group’s sharebased payment plans during the year
sharesave esop psp apra
number
millions
weighted
 average 
exercise price
pence
number
millions
weighted 
average 
exercise price
pence
number
millions
number
millions
outstanding at 1 january 2013 268 447 01 77 140 40 
granted 100 961 – – 28 16 
additional entitlements arising from tsr performance – – – – 06 – 
additional shares accrued from reinvestment of c shares – – – – – 01 
forfeited 06 483 – – 06 01
exercised 102 404 01 77 48 25
outstanding at 1 january 2014 260 660 – – 120 31 
granted – – 29 11 
additional entitlements arising from tsr performance – – 05 – 
additional shares accrued from reinvestment of c shares – – – 01 
forfeited 10 775 12 02
exercised 05 487 44 17
outstanding at 31 december 2014 245 660 98 24 
exercisable at 31 december 2014 – – – –
exercisable at 31 december 2013 – – – – 
as share options are exercised throughout the year the weighted average share price during the year of 1013p 2013 1123p is 
representative of the weighted average share price at the date of exercise the closing price at 31 december 2014 was 870p 2013 1275p
fair values of sharebased payment plans
the weighted average fair value per share of equitysettled sharebased payment plans granted during the year estimated at the date of 
grant are as follows
2014 2013
psp – 25 tsr uplift 1105p 1128p 
psp – 50 tsr uplift 1227p 1254p 
sharesave – 3 year grant na 287p 
sharesave – 5 year grant na 349p 
apra 984p 1027p 
psp
the fair value of shares awarded under the psp is calculated using a pricing model that takes account of the nonentitlement to dividends 
or equivalent during the vesting period and the marketbased performance condition based on expectations about volatility and the 
correlation of share price returns in the group of ftse 100 companies and which incorporates into the valuation the interdependency 
between share price performance and tsr vesting this adjustment increases the fair value of the award relative to the share price at the 
date of grant
sharesave
the fair value of the options granted under the sharesave plan is calculated using a binomial pricing model that assumes that participants 
will exercise their options at the beginning of the sixmonth 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 that falls somewhere between 
the start and end of the exercise window
apra
the fair value of shares awarded under apra is calculated as the share price on the date of the award excluding expected dividends or 
equivalent financial statements
rollsroyce holdings plc annual report 2014 146
notes to the consolidated financial statements
continued
22 leases
operating leases
leases as lessee
2014
£m
2013
£m
rentals paid – hire of plant and machinery 123 134 
 – hire of other assets 75 55 
noncancellable operating lease rentals are payable as follows
within one year 182 179 
between one and five years 542 545 
after five years 438 507 
1162 1231 
leases as lessor
2014
£m 
2013
£m 
rentals received – credited within revenue from aftermarket services 15 56 
noncancellable operating lease rentals are receivable as follows
within one year 16 19 
between one and five years 30 48 
after five years 13 23 
59 90 
the group acts as lessee and lessor for both land and buildings and gas turbine engines and acts as lessee for some plant and equipment
• sublease payments of £1 million 2013 £1 million and sublease receipts of £12 million 2013 £27 million were recognised in the income 
statement in the year
• purchase options exist on aero engines land and buildings and plant and equipment with the period to the purchase option date 
varying between one to eight years
• renewal options exist on aero engines land and buildings and plant and equipment with the period to the renewal option varying 
between one to 42 years at terms to be negotiated upon renewal
• escalation clauses exist on some leases and are linked to libor
• the total future minimum sublease payments expected to be made are £6 million 2013 £8 million and sublease receipts expected to be 
received are £31 million 2013 £42 million
finance leases
leases as lessee
finance lease liabilities are payable as follows
2014 2013
payments
£m
interest
£m
principal
£m
payments
£m
interest
£m
principal
£m
within one year 3 2 1 – – –
between one and five years 13 7 6 1 – 1
after five years 47 9 38 – – –
63 18 45 1 – 1 financial statements
147
23 contingent liabilities
contingent liabilities in respect of customer financing commitments are described in note 18
on 6 december 2012 the company announced that it had passed information to the serious fraud office sfo following a request from 
the sfo for information about allegations of malpractice in overseas markets on 23 december 2013 the company announced that it had 
been informed by the sfo that it had commenced a formal investigation since the initial announcement the company has continued its 
investigations and is engaging with the sfo and other authorities in the uk the usa and elsewhere in relation to the matters of concern 
the consequence of these disclosures will be decided by the regulatory authorities it is too early to predict the outcomes but these could 
include the prosecution of individuals and of the group accordingly the potential for fines penalties or other consequences cannot 
currently be assessed as the investigation is ongoing it is not yet possible to identify the timescale in which these issues might be resolved
contingent liabilities exist in respect of guarantees provided by the group in the ordinary course of business for product delivery 
performance and reliability the group has in the normal course of business entered into arrangements in respect of export ﬁnance 
performance bonds countertrade obligations and minor miscellaneous items various group undertakings are parties to legal actions  
and claims which arise in the ordinary course of business some of which are for substantial amounts as a consequence of the insolvency 
of an insurer as previously reported the group is no longer fully insured against known and potential claims from employees who worked 
for certain of the group’s ukbased businesses for a period prior to the acquisition of those businesses by the group while the outcome  
of some of these matters cannot precisely be foreseen the directors do not expect any of these arrangements legal actions or claims after 
allowing for provisions already made to result in signiﬁcant loss to the group 
the group’s share of equity accounted entities’ contingent liabilities is £11 million 2013 £13 million
following the sale of the energy business to siemens on 1 december 2014 and further to the announcement on 19 june 2014 of a £1 billion 
share buyback on 10 december 2014 the company put in place an initial £250 million programme for the purchase of its ordinary shares 
the aim of the buyback is to reduce the share capital of the company helping enhance returns to shareholders in the period to 
31 december 2014 8215000 shares were purchased at an average price of 840 pence leaving a contracted commitment of £182 million 
24 related party transactions
2014
£m 
2013
£m 
sales of goods and services to joint ventures and associates 2138 3149 
purchases of goods and services from joint ventures and associates 2544 3269
operating lease payments to joint ventures and associates 81 69
guarantees of joint ventures’ and associates’ borrowings 9 7 
dividends received from joint ventures and associates 73 99 
rrsa receipts from joint ventures and associates 2 4 
other income received from joint ventures and associates 2 1 
the aggregated balances with joint ventures are shown in notes 13 and 16 transactions with group pension schemes are shown in note 19
in the course of normal operations related party transactions entered into by the group have been contracted on an armslength basis
key management personnel are deemed to be the directors and the members of the elt as set out on pages 54 to 57 remuneration for key 
management personnel is shown below
2014
£m 
2013
£m 
salaries and shortterm benefits 9 11 
postretirement schemes 1 1 
sharebased payments 4 7 
14 19 
more detailed information regarding the directors’ remuneration shareholdings pension entitlements share options and other longterm 
incentive plans is shown in the directors’ remuneration report on pages 76 to 85 financial statements
rollsroyce holdings plc annual report 2014 148
notes to the consolidated financial statements
continued
25 acquisitions and disposals
acquisitions
on 5 march 2014 the group acquired the 50 of gate leasing limited that it did not already own for us5 million the principal assets  
and liabilities acquired were aircraft engines £37 million and borrowings £30 million
disposals
on 1 december 2014 the group sold its energy business for £785 million which included a contribution to the costs of separating the 
energy business from the group’s continuing activities most significantly the creation of a standalone it system in addition rollsroyce 
has received a further £200 million for a 25year licensing agreement
1
 granting siemens access to relevant rollsroyce aeroderivative 
technology for use in the 4 to 85mw power output gas turbine range the energy business disposal gave rise to a cash inflow of £1027 
million in accordance with ifrs 5 noncurrent assets held for sale and discontinued operations the disposal of the energy business has 
been accounted for as a discontinued operation 
in addition on 1 october 2014 the group sold its interest in mtu australia pty limited for £24 million the principal activity of this 
company was to hold the group’s joint venture interest in mtu detroit diesel australia pty limited
energy
discontinued
 operation
£m
mtu 
australia
£m
proceeds
cash consideration 985 24 
adjustments and future obligations to the purchaser 28 –
total consideration before deferrals 957 24
receipt of licensing agreement proceeds deferred as at 1 december 2014
1
58 –
total consideration after deferrals 899 24
assets and liabilities disposed
intangible assets 106 – 
property plant and equipment 187 – 
investment in joint venture 56 14 
inventory 320 – 
deposits payments received on account 11 – 
trade and other receivables 337 – 
cash and cash equivalents 4 – 
trade and other payables 253 – 
provisions for liabilities and charges 34 – 
net assets disposed 712 14 
profit on disposal
profit on disposal before disposal costs and continuing obligations 187 10
cumulative currency translation gainloss 32 3
disposal costs and continuing obligations
2
98 1
postretirement scheme net credit
3
15 –
profit on disposal of business before tax 136 6
tax on disposal 2 –
profit on disposal of business after tax 138 6
reconciliation to cash flow statement
total consideration after deferrals 899 24
adjustments future obligations and receipt of licensing agreement proceeds deferred at 1 december 2014
4
158 –
cash and cash equivalents disposed 4 –
disposal costs paid in the year 26 –
cash inflow per cash flow statement 1027 24
1
  the £200m licensing agreement contained £142m to provide intellectual property which has been recognised in the period whilst £58m relating to the provision of engineering 
services and supply of parts has been deferred over a period up to 25 years
2  
disposal costs £98m incurred and accrued includes costs to separate the energy business including it legal and transactional fees
3
  profit on the sale of business includes pension and other postretirement benefit plan curtailment gains of £26m note 19 and an accrual to settle a pension deficit that is expected  
to transfer to siemens during 2015
4
  £58m of costs relating to future obligations to siemens not yet incurred have been accrued and £58m relating to the licensing agreement have been deferred in addition the energy 
disposal is subject to customary postclosing adjustments that are estimated to be £42m which may include adjustments for working capital such adjustments may result in the 
final amounts received from the purchaser differing from the disposal proceeds above financial statements
149
company balance sheet
at 31 december 2014
notes
2014
£m
2013
£m
fixed assets
investments – subsidiary undertakings 2 12015 12000
debtors – amounts falling due with one year
amounts owed by subsidiary undertakings 57 –
creditors – amounts falling due within one year
financial liabilities 3 22 16
amounts owed to subsidiary undertakings – 995
net current assetsliabilities 35 1011
total assets less current liabilities 12050 10989 
capital and reserves
calledup share capital 4 376 376 
share premium account 5 179 80 
merger reserve 5 7789 8203 
capital redemption reserve 5 1267 857 
other reserve 5 124 109 
profit and loss account 5 2315 1364 
equity shareholders’ funds 12050 10989 
the financial statements on pages 149 to 151 were approved by the board on 12 february 2015 and signed on its behalf by
john rishton chief executive   david smith chief financial officer
company’s registered number 7524813
reconciliation of movements in shareholders’ funds
for the year ended 31 december 2014
£m
at 1 january 2014 10989 
profit for the year 1500 
arising on issue of ordinary shares 101 
purchase of ordinary shares 69
issue of c shares 414
sharebased payments – direct to equity 57
at 31 december 2014 12050  financial statements
rollsroyce holdings plc annual report 2014 150
notes to the company financial statements
1 accounting policies
basis of accounting
the financial statements have been prepared in accordance with applicable uk accounting standards on the historical cost basis
as permitted by section 408 of the companies act 2006 a separate profit and loss account for the company has not been included in 
these financial statements as permitted by the audit fee disclosure regulations disclosure of nonaudit fees information is not included 
in respect of the company as permitted by frs 1 cash flow statements no cash flow statement for the company has been included 
as permitted by frs 8 related party disclosures no related party disclosures in respect of transactions between the company and its  
wholly owned subsidiaries have been included
investments in subsidiary undertakings
investments in subsidiary undertakings are reported at cost less any amounts written off
sharebased payments
as described in the remuneration report on pages 78 to 80 the company grants awards of its own shares to employees of its subsidiary 
undertakings see note 21 of the consolidated financial statements the costs of sharebased payments in respect of these awards are 
accounted for by the company as an additional investment in its subsidiary undertakings the costs are determined in accordance with 
frs 20 sharebased payment any payments made by the subsidiary undertakings in respect of these arrangements are treated as a return 
of this investment
financial instruments
in accordance with frs 25 financial instruments presentation the company’s c shares are classified as financial liabilities and held  
at amortised cost from the date of issue until redeemed 
2 investments – subsidiary undertakings
£m
cost
at 1 january 2014 12000 
cost of sharebased payments in respect of employees of subsidiary undertakings  
less receipts from subsidiaries in respect of those payments 15 
at 31 december 2014 12015 
3 financial liabilities
c shares
movements in c shares during the year were as follows
c shares
of 01p
millions
nominal
value
£m
issued and fully paid
at 1 january 2013 16286 16 
shares issued 413669 414 
shares redeemed 407950 408
at 31 december 2014 22005 22 
the rights attaching to c shares are set out on page 162 financial statements
151
4 share capital
nonequity equity
special
share
of £1
preference 
shares of 
£1 each
nominal
value
£m
ordinary
shares of
20p each
millions
nominal
value
£m
issued and fully paid
at 1 january 2014 1 – – 1880 376 
cancellation of ordinary shares – – – 8 2
shares issued to share trust – – – 10 2 
at 31 december 2014 1 – – 1882 376
the rights attaching to each class of share are set out on page 162
in accordance with frs 25 financial instruments presentation the company’s noncumulative redeemable preference shares c shares  
are classified as financial liabilities accordingly movements in c shares are included in note 3
5 movements in capital and reserves
nondistributable reserves
share
capital
£m
share 
premium
£m
merger 
reserve
£m
capital
redemption
reserve
£m
other
reserve
 1
£m
profit
and loss
account 
£m
total
£m
at 1 january 2014 376 80 8203 857 109 1364 10989 
profit for the year – – – – – 1500 1500 
shares issued to share trust 2 99 – – – – 101 
purchase of ordinary shares – – – – – 69 69
cancellation of ordinary shares 2 – – 2 – – –
issue of c shares – – 414 – – – 414
redemption of c shares – – – 408 – 408  
sharebased payments – direct to equity – – – – 15 72 57
at 31 december 2014 376 179 7789 1267 124 2315 12050 
1
  the ‘other reserve’ represents the value of sharebased payments in respect of employees of subsidiary undertakings for which payment has not been received
6 contingent liabilities
where the company enters into financial guarantee contracts to guarantee the indebtedness of other companies within its group the 
company considers these to be insurance arrangements and accounts for them as such in this respect the company treats the guarantee 
contract as a contingent liability until such time as it becomes probable that the company will be required to make a payment under  
the guarantee
at 31 december 2014 these guarantees amounted to £959 million 2013 £1 billion
following the sale of the energy business to siemens on 1 december 2014 and further to the announcement on 19 june 2014 of a £1 billion 
share buyback on 10 december 2014 the company put in place an initial £250 million programme for the purchase of its ordinary shares 
the aim of the buyback is to reduce the share capital of the company helping enhance returns to shareholders in the period to 
31 december 2014 8215000 shares were purchased at an average price of 840 pence leaving a contracted commitment of £182 million
7 other information
emoluments of directors
the remuneration of the directors of the company is shown in the directors’ remuneration report on pages 76 to 85
employees
the company had no employees in 2014
sharebased payments
shares in the company have been granted to employees of the group as part of sharebased payment plans and are charged in the 
employing company other information
rollsroyce holdings plc annual report 2014 152
subsidiaries jointly controlled entities and associates
the companies listed below are indirectly held by rollsroyce holdings plc except rollsroyce group plc which is directly held each 
company’s principal place of business is its country of incorporation and the effective group interest is 100
in accordance with section 410 of the companies act 2006 the subsidiaries jointly controlled entities and associates are those where the 
results or financial position in the opinion of the directors principally affect the financial statements a list of all related undertakings will 
be included in the company’s annual return to companies house
country of 
incorporation principal activity
rollsroyce brasil limitada brazil aero engine repair and overhaul and marine aftermarket support services
rollsroyce canada limited canada aero engine sales service and overhaul
mtu engineering suzhou company limited china service and spare parts centre
rollsroyce marine manufacturing  
shanghai limited
china manufacture and supply of marine equipment and marine aftermarket 
support services
composite technology and applications limited england development of aero engine fan blades and fan cases
mtu uk limited england sale and services of offhighway diesel engines
rollsroyce controls and data services limited england development and manufacture of aero engine controls and monitoring systems
rollsroyce group plc england holding company
rollsroyce international limited england international support and commercial information services
rollsroyce leasing limited england engine leasing
rollsroyce marine electrical systems limited england marine electrical systems
rollsroyce marine power operations limited england nuclear submarine propulsion systems
rollsroyce plc england principal uk trading company
rollsroyce power development limited england generation of electricity from independent power projects
rollsroyce power engineering plc england marine systems
rollsroyce total care services limited england aero engine aftermarket support services
vinters engineering limited england production repair and overhaul of power generation transmission and conversion 
equipment for military and commercial activities
rollsroyce oy ab finland manufacture of marine winches and propeller systems
rollsroyce civil nuclear sas france instrumentation and control systems and lifecycle management for nuclear power 
plants 
rollsroyce technical support sarl france aero engine project support
l’orange gmbh germany development and production of highpressure injection systems for diesel engines
mtu friedrichshafen gmbh germany development production and distribution of gas turbines and engines
mtu onsite energy gmbh germany sales and service of gas engines
mtu onsite energy systems gmbh germany manufacture and distributor of dieselpowered generating sets
rollsroyce deutschland ltd  co kg germany aero engine design development and manufacture
rollsroyce power systems ag germany supplier of engines and power trains for marine propulsion distributed power 
generation and industrial offhighway sectors 
nightingale insurance limited guernsey insurance services
mtu hong kong limited hong kong distributor for offhighway products and aftersales service
rollsroyce india private limited india diesel engine project management and customer support
rollsroyce marine india private limited india provision of marine support services
rollsroyce operations india private limited india engineering support services
europea microfusioni aerospaziali spa italy manufacture of gas turbine engine castings
mtu italia srl italy distributor for offhighway products and aftersales service
mtu benelux bv netherlands sales and aftersales support for diesel engines
bergen engines as norway design and manufacture of mediumspeed diesel engines 
rollsroyce marine as norway design and manufacture of ship equipment
mtu asia pte limited singapore distributor of diesel engines and spare parts
rollsroyce singapore pte limited singapore aero engine parts manufacturing and engine assembly and marine aftermarket 
support services
mtu south africa pty limited south africa distributor of offhighway products and aftersales service
mtu ibérica propulsión y energía sl spain sales and service of transmission equipment with diesel and gas engines
rollsroyce ab sweden manufacture of marine propeller systems
mtu motor türbin sanayi ve tic as turkey production of diesel engines and manufacturer of control systems
data systems  solutions llc us instrumentation and control systems and lifecycle management for nuclear  
power plants
mtu america inc us sales and service of engines and systems
optimized systems and solutions inc us equipment health management and advanced data management services
pkmj technical services inc us civil nuclear engineering services and software solutions 
r brooks associates inc us specialist civil nuclear reactor services
rollsroyce corporation us design development and manufacture of gas turbine engines other information
153
country of 
incorporation principal activity
rollsroyce crosspointe llc us manufacturing facility for aero engine parts
rollsroyce defense services inc us aero engine repair and overhaul
rollsroyce energy systems inc us energy turbine generator packages 
rollsroyce engine services – oakland inc us aero engine repair and overhaul 
rollsroyce high temperature composites inc us production of stateoftheart composite materials
rollsroyce marine north america inc us design and manufacture of marine equipment and aftermarket support services
the companies listed below are indirectly held by rollsroyce holdings plc each company’s principal place of business is its country of 
incorporation
country of 
incorporation
class of 
shares  of class held
group
interest held 
shanxi north mtu diesel co ltd china manufacturer of aero engine parts ordinary 49 49
xian xr aero components co limited china manufacturer of aero engine parts ordinary 49 49
airtanker holdings limited england strategic tanker aircraft pfi project ordinary 20 20
airtanker services limited england provision of aftermarket services for 
strategic tanker aircraft
ordinary 22 22
alpha partners leasing limited england aero engine leasing a ordinary 100 50
genistics holdings limited england trailermounted field mobile generator sets a ordinary 100 50
rollsroyce snecma limited england aero engine collaboration b shares 100 50
trt limited england aero engine turbine blade repair services b ordinary 100 495
turbine surface technologies limited england aero engine turbine surface coatings b ordinary 100 50
turbounion limited england rb199 engine collaboration ordinary
a shares
40
375
40
epi europrop international gmbh
effective group interest held 355
germany a400m engine collaboration ordinary 28 28
eurojet turbo gmbh 
effective group interest held 39
germany ej200 engine collaboration ordinary 33 33
mtu turbomeca rollsroyce gmbh germany mtr390 engine collaboration ordinary 333 333
n3 engine overhaul services gmbh  co kg germany aero engine repair and overhaul ordinary 50 50
hong kong aero engine services limited hong kong aero engine repair and overhaul ordinary 45 45
international aerospace manufacturing private 
limited
india manufacturer of aero engine parts ordinary 50 50
techjet aerofoils limited israel manufacturer of aero engine parts a ordinary
b ordinary
50
50
50
international engine component overhaul pte 
limited
singapore aero engine repair and overhaul ordinary 50 50
singapore aero engine services private limited 
effective group interest 39
singapore aero engine repair and overhaul ordinary 30 30
industria de turbo propulsores sa spain aero engine component manufacture  
and maintenance
ordinary 469 469
alpha leasing us llc alpha leasing us no2  
llc alpha leasing us no4 llc alpha leasing  
us no5 llc alpha leasing us no6 llc alpha 
leasing us no7 llc alpha leasing us no8  
llc rollsroyce  partners finance us llc  
rollsroyce  partners finance us no2 llc
us aero engine leasing partnerships
no equity 
held
– 50
exostar llc us business to business internet exchange partnership
no equity 
held
– 185
lg fuel cell systems inc us development of fuel cells common 
stock
32 32
texas aero engine services llc us aero engine repair and overhaul partnership
no equity 
held
– 50
unincorporated
light helicopter turbine engine company lhtec us t800 engine development and market partnership 
no equity 
held
– 50 other information
rollsroyce holdings plc annual report 2014 154
independent auditor’s report
to the members of rollsroyce holdings plc only
opinions and conclusions arising from our audit
1 our opinion on the financial statements is unmodified
we have audited the financial statements of rollsroyce  
holdings plc for the year ended 31 december 2014 set out  
on pages 95 to 151 in our opinion
• the financial statements give a true and fair view of the state of 
the group’s and of the parent company’s affairs as at 31 december 
2014 and of the group’s profit for the year then ended
• the group financial statements have been properly prepared in 
accordance with international financial reporting standards as 
adopted by the european union adopted ifrs
• the parent company financial statements have been properly 
prepared in accordance with uk accounting standards and
• the financial statements have been prepared in accordance with 
the requirements of the companies act 2006 and as regards the 
group financial statements article 4 of the ias regulation
2 our assessment of risks of material misstatement
we summarise below the risks of material misstatement that had 
the greatest effect on our audit our key audit procedures to address 
those risks and our findings from those procedures in order that the 
company’s members as a body may better understand the process 
by which we arrived at our audit opinion our findings are the result 
of procedures undertaken in the context of and solely for the 
purpose of our statutory audit opinion on the financial statements 
as a whole and consequently are incidental to that opinion and  
we do not express discrete opinions on separate elements of the 
financial statements
given the longterm nature of the group’s business it is inevitable 
that the risks that had the greatest effect on our audit change little 
from year to year nevertheless there have been a number of 
changes from 2013 the most significant being 
• for the 2014 audit due to a number of revisions to the group’s 
published guidance on revenue and profit we significantly 
increased our focus and work on the risk relating to the pressure 
on and incentives for management to meet revised revenue and 
profit guidance
• the audit work in connection with the risk relating to accounting 
for risk and revenue sharing arrangements was substantially less 
than that required in the 2013 audit as the financial reporting 
council’s enquiry was concluded during the 2013 audit there 
have been no changes to relevant accounting standards and only 
a small number of new agreements have been entered into this 
year and
• the risks relating to accounting for the consolidation of rollsroyce 
power systems holding gmbh and the valuation of daimler ag’s 
put option required substantially less audit effort than in earlier 
years when the transactions took place in part due to the exercise 
of the put option by daimler ag during 2014
the pressure on and incentives for management to meet revised 
revenue and profit guidance
refer to pages 32 to 41 business reviews and pages 69 to 71 audit 
committee report – financial reporting
the risk – the group published a number of revisions to its revenue 
and profit guidance during the year with a generally decreasing 
trend in profit and revenue and there have been significant 
associated decreases in the group’s share price the chief executive 
clearly instructed the executive leadership team and the senior 
finance executives on more than one occasion not to take any 
account of the pressure to meet forecasts in preparing the financial 
results and to be alert to how this might affect personnel across  
the wider group nevertheless the heightened pressure on and 
incentives for management to meet the latest guidance increased 
the inherent risk of manipulation of the financial statements  
the financial results are sensitive to significant estimates and 
judgements particularly in respect of revenues and costs 
associated with longterm contracts and there is a broad range  
of acceptable outcomes of these that could lead to different profit 
and revenue reported in the financial statements relatively small 
changes in the basis of those judgements and estimates could 
result in the group meeting exceeding or falling short of guidance 
our response – we have i extended our enquiries designed  
to assess whether management had applied unconscious bias  
or had taken systematic actions to manipulate the reported results 
ii compared the results to forecasts and challenged variances at  
a much more granular level than we would otherwise have done 
based on our understanding of factors affecting business 
performance with corroboration using external data where 
possible iii applied an increased level of scepticism throughout  
the audit by increasing the involvement of the senior audit team 
personnel with particular focus on audit procedures designed  
to assess whether revenues and costs have been recognised  
in the correct accounting period and whether central adjustments 
were appropriate and iv challenged our entire audit approach 
based on an independent review by personnel with no other 
involvement in the audit
in particular 
• when considering the risk relating to the measurement of revenue 
and profit in the civil aerospace business we challenged the basis 
for changes in the estimated revenues and costs in longterm 
contracts with a heightened awareness of the possibility of 
unconscious or systematic bias and
• when considering the risk relating to the presentation of 
underlying profit we sought to identify items that affected profit 
andor the trend in profit unevenly in frequency or amount  
at a much lower level than we would otherwise have done and  
to assess the transparency of disclosure of these items
our findings – aside from one transaction which had a very  
small impact on the group’s profit and which was subsequently 
corrected by management our testing did not identify any 
indication of manipulation of results we found the degree of 
cautionoptimism adopted in estimates to be broadly consistent 
with that adopted in the previous year with no indication of 
conscious or unconscious bias  other information
155
the basis of accounting for revenue and profit in the civil aerospace 
business
refer to page 101 and 102 key areas of judgement – introduction 
contractual aftermarket rights linkage of original and longterm 
aftermarket contracts pages 104 and 105 significant accounting 
policies – revenue recognition and pages 69 to 71 audit committee 
report – financial reporting
the risk – the amount of revenue and profit recognised in a year on 
the sale of engines and aftermarket services is dependent inter alia 
on the appropriate assessment of whether or not each longterm 
aftermarket contract for services is linked to or separate from  
the contract for sale of the related engines as this drives the  
accounting basis to be applied as the commercial arrangements 
can be complex significant judgement is applied in selecting the 
accounting basis in each case the most significant risk is that the 
group might inappropriately account for sales of engines and 
longterm service agreements as a single arrangement for 
accounting purposes as this would usually lead to revenue and 
profit being recognised too early because the margin in the 
longterm service agreement is usually higher than the margin  
in the engine sale agreement
our response – we reevaluated the appropriateness of the 
accounting bases the group applies in the civil aerospace  
business by reference to accounting standards including  
examining correspondence and attending meetings between  
the group and the financial reporting council and reexamining 
historical longterm aftermarket contracts we considered whether 
the enhanced disclosure included in the financial statements 
following this dialogue enables shareholders to understand how  
the accounting policies represent the commercial substance  
of the group’s contracts with its customers we made our own 
independent assessment with reference to the relevant accounting 
standards of the accounting basis that should be applied to each 
longterm aftermarket contract entered into during the year and 
compared this to the accounting basis applied by the group
our findings – we found that the group has developed  
a framework for selecting the accounting bases which is  
consistent with a balanced interpretation of accounting standards 
2013 audit finding balanced and has applied this consistently  
we found that the enhanced disclosure was ample for the 
agreements entered into during this year it was clear which 
accounting basis should apply 
the measurement of revenue and profit in the civil aerospace 
business
refer to pages 101 and 102 key areas of judgement – measurement 
of performance on longterm aftermarket contracts pages 104  
and 105 significant accounting policies – revenue recognition  
and totalcare arrangements and pages 69 to 71 audit committee 
report – financial reporting
the risk – the amount of revenue and profit recognised in a year  
on the sale of engines and aftermarket services is dependent  
inter alia on the assessment of the percentage of completion of 
longterm aftermarket contracts and the forecast cost profile of 
each arrangement as longterm aftermarket contracts can extend 
over significant periods and the profitability of these arrangements 
typically assumes significant lifecycle cost improvement over the 
term of the contracts the estimated outturn requires significant 
judgement to be applied in assessing engine flying hours time on 
wing and other operating parameters the pattern of future 
maintenance activity and the costs to be incurred the inherent 
nature of these estimates means that their continual refinement 
can have an impact on the profits of the civil aerospace business 
that can be significant in an individual financial year the 
assessment of the estimated outturn for each arrangement involves 
detailed calculations using large and complex databases with  
a significant level of manual intervention
our response – we tested the controls designed and applied by  
the group to provide assurance that the estimates used in assessing 
revenue and cost profiles are appropriate and that the resulting 
estimated cumulative profit on such contracts is accurately 
reflected in the financial statements these controls operated over 
both the inputs and the outputs of the calculations we challenged 
the appropriateness of these estimates for each programme and 
assessed whether or not the estimates showed any evidence of 
conscious or unconscious management bias in the context of the 
heightened pressure on and incentives for management to meet  
the latest guidance discussed above our challenge was based on 
our assessment of the historical accuracy of the group’s estimates  
in previous periods identification and analysis of changes in 
assumptions from prior periods and an assessment of the 
consistency of assumptions across programmes detailed 
assessments of the achievability of the group’s plans to reduce 
lifecycle costs and an analysis of the impact of these plans on 
forecast cost profiles taking account of contingencies and analysis of 
the impact of known technical issues on cost forecasts our analysis 
considered each significant airframe that is powered by the group’s 
engines and was based on our own experience supplemented by 
discussions with an aircraft valuation specialist engaged by the 
group we assessed whether the valuer was objective and suitably 
qualified we also checked the mathematical accuracy of the 
revenue and profit for each arrangement and considered the 
implications of identified errors and changes in estimates
our findings – in 2013 our testing identified weaknesses in the 
design and operation of controls and we assessed the effectiveness 
of the group’s plans for addressing these weaknesses in planning 
the 2014 audit we anticipated that the control weaknesses 
identified in 2013 audit would be remediated however our testing 
identified continuing albeit reduced control weaknesses in some 
areas and so as in 2013 we increased the scope and depth of our 
detailed testing and analysis from that originally planned overall 
our assessment is that the assumptions and resulting estimates  other information
rollsroyce holdings plc annual report 2014 156
including appropriate contingencies resulted in mildly cautious 
2013 audit finding mildly cautious profit recognition and we  
found no indication of conscious or unconscious bias
recoverability of intangible assets certification costs and 
participation fees development expenditure and contractual 
aftermarket rights and amounts recoverable on contracts primarily 
in the civil aerospace business
refer to page 103 key sources of estimation uncertainty – forecasts 
and discount rates pages 107 and 108 significant accounting 
policies – certification costs and participation fees research and 
development contractual aftermarket rights and impairment of 
noncurrent assets page 122 note 9 to the financial statements 
– intangible assets and pages 69 to 71 audit committee report – 
financial reporting
the risk – the recovery of these assets depends on a combination  
of achieving sufficiently profitable business in the future as well  
as the ability of customers to pay amounts due under contracts 
often over a long period of time assets relating to a particular 
engine programme are more prone to the risk of impairment  
in the early years of a programme as the engine’s market position  
is established in addition the pricing of business with launch 
customers makes assets relating to these engines more prone  
to the risk of impairment
our response – we tested the controls designed and applied by the 
group to provide assurance that the assumptions used in preparing 
the impairment calculations are regularly updated that changes are 
monitored scrutinised and approved by appropriate personnel and 
that the final assumptions used in impairment testing have been 
appropriately approved we challenged the appropriateness of the 
key assumptions in the impairment test including market size 
market share pricing engine and aftermarket unit costs individual 
programme assumptions price and cost escalation discount rate 
and exchange rates focusing particularly on those assets with  
a higher risk of impairment those relating to the trent 900 
programme and launch customers on the trent 900 and trent 1000 
programmes our challenge was based on our assessment of the 
historical accuracy of the group’s estimates in previous periods  
our understanding of the commercial prospects of key engine 
programmes identification and analysis of changes in assumptions 
from prior periods and an assessment of the consistency of 
assumptions across programmes and customers and comparison  
of assumptions with publicly available data where this was 
available we tested the mathematical accuracy of the impairment 
calculations we considered whether the disclosures in note 9 to  
the financial statements describe the inherent degree of 
subjectivity in the estimates and the potential impact on future 
periods of revisions to these estimates
our findings – our testing did not identify weaknesses in the 
design and operation of controls that would have required us  
to expand the nature or scope of our planned detailed test work  
we found that the assumptions and resulting estimates were 
balanced 2013 audit finding balanced and that the disclosures 
were proportionate 2013 audit finding proportionate we found  
no errors in calculations 2013 audit finding none
liabilities arising from sales financing arrangements
refer to page 103 key areas of judgement – customer financing 
contingent liabilities page 109 significant accounting policies – sales 
financing support pages 137 and 138 note 18  
to the financial statements – provisions for liabilities and charges  
and pages 69 to 71 audit committee report – financial reporting
the risk – the group has contingent liabilities in respect of financing 
and asset value support provided to customers this support 
typically takes the form of a guarantee with respect to  
the value of an aircraft at a future date a commitment to buy used 
aircraft or a guarantee of a customer’s future payments under an 
aircraft financing arrangement judgement is required to assess the 
likelihood of these liabilities crystallising in order to assess whether 
a provision should be recognised and if so the amount of that 
provision the total potential liability is significant and can be 
affected by the assessment of the residual value of the aircraft  
and the creditworthiness of the customers
our response – we analysed the terms of guarantees on aircraft 
delivered during the year in detail and obtained aircraft values from 
and held discussions with aircraft valuation specialists engaged  
by the group we assessed whether the valuer was objective and 
suitably qualified had been appropriately instructed and had been 
provided with complete accurate data on which to base its 
evaluation for all contracts on delivered aircraft we assessed the 
commercial factors relevant to the likelihood of the guarantees 
being called including the credit ratings and recent financial 
performance of the relevant customers and their fleet plans and 
critically assessed the group’s estimate of the required provisions  
for those liabilities we considered movements in aircraft values  
and potential changes in the assessed probability of a liability 
crystallising since the previous year end and considered whether  
the evidence supported the group’s assessment as to whether or  
not a liability needs to be recognised and the amount of the liability 
recognised or contingent liability disclosed we considered whether 
the related disclosure in note 18 to the financial statements 
appropriately explains the potential liability in excess of the amount 
provided for in the financial statements for delivered aircraft and 
highlights the significant but unquantifiable contingent liability  
in respect of aircraft which will be delivered in the future
our findings – we found that the assumptions and estimates were 
balanced 2013 audit finding balanced and that the disclosures were 
proportionate 2013 audit finding proportionate
independent auditor’s report
continued other information
157
bribery and corruption
refer to page 147 note 23 to the financial statements – contingent 
liabilities and pages 69 to 71 audit committee report – financial 
reporting
the risk – a large part of the group’s business is characterised by 
competition for individually significant contracts with customers 
which are often directly or indirectly associated with governments 
and the award of individually significant contracts to suppliers  
the procurement processes associated with these activities are  
highly susceptible to the risk of corruption in addition the group 
operates in a number of territories where the use of commercial 
intermediaries is either required by the government or is normal 
practice in december 2013 the group announced that it had been 
informed by the serious fraud office in the uk that it had 
commenced a formal investigation into bribery and corruption in 
overseas markets the group is cooperating with the serious fraud 
office and other agencies including the us department of justice 
breaches of laws and regulations in this area can lead to fines 
penalties criminal prosecution commercial litigation and  
restrictions on future business
our response – we evaluated and tested the group’s policies 
procedures and controls over the selection and renewal of 
intermediaries contracting arrangements ongoing management 
payments and responses to suspected breaches of policy we sought 
to identify and tested payments made to intermediaries during  
the year made enquiries of appropriate personnel and evaluated  
the tone set by the board and the executive leadership team and  
the group’s approach to managing this risk having enquired of 
management the audit committee and the board as to whether  
the group is in compliance with laws and regulations relating to 
bribery and corruption we made written enquiries of the group’s 
legal advisers to corroborate the results of those enquiries and 
maintained a high level of vigilance to possible indications of 
significant noncompliance with laws and regulations relating  
to bribery and corruption whilst carrying out our other audit 
procedures we discussed the areas of potential or suspected 
breaches of law including the ongoing investigation with the  
audit committee and the board as well as the group’s legal advisers 
and assessed related documentation we assessed whether the 
disclosure in note 23 to the financial statements of the group’s 
exposure to the financial effects of potential or suspected breaches 
of law or regulation complies with accounting standards and in 
particular whether it is the case that the investigation remains  
at too early a stage to assess the consequences if any including  
in particular the size of any possible fines
our findings – we found that disclosure to be proportionate  
2013 audit finding proportionate
presentation and explanation of results
refer to pages 32 to 41 business reviews pages 28 to 31 financial 
review pages 112 and 113 note 2 to the financial statements – 
segmental analysis and pages 69 to 71 audit committee report – 
financial reporting
the presentation of ‘underlying profit’
the risk – in addition to its adopted ifrs financial statements  
the group presents an alternative income statement on an 
‘underlying’ basis the directors believe the ‘underlying’ income 
statement reflects better the group’s trading performance during 
the year the basis of adjusting between the adopted ifrs and 
‘underlying’ income statements and a full reconciliation between 
them is set out in note 2 to the financial statements on pages 110 
and 113 a significant recurring adjustment between the adopted 
ifrs income statement and the ‘underlying’ income statement 
relates to the foreign exchange rates used to translate foreign 
currency transactions the group uses forward foreign exchange 
contracts to manage the cash flow exposures of forecast 
transactions denominated in foreign currencies but does not 
generally apply hedge accounting in its adopted ifrs income 
statement the ‘underlying’ income statement translates these 
amounts at the achieved foreign exchange rate on forward foreign 
exchange contracts settled in the period retranslates assets and 
liabilities at exchange rates forecast to be achieved from future 
settlement of such contracts and excludes unrealised gains and 
losses on such contracts which are included in the adopted ifrs 
income statement the group has discretion over which forward 
foreign exchange contracts are settled in each financial year which 
could impact the achieved rate both for the period and in the future 
in addition adjustments are made to exclude oneoff pastservice 
costs on postretirement schemes restructuring activities that 
significantly change the shape of the group’s operations and the 
effect of acquisition accounting and a number of other items 
alternative performance measures can provide shareholders with 
appropriate additional information if properly used and presented 
in such cases measures such as these can assist shareholders in 
gaining a better understanding of a company’s financial 
performance and strategy however when improperly used and 
presented these kinds of measures might prevent the annual report 
being fair balanced and understandable by hiding the real financial 
position and results or by making the profitability of the reporting 
entity seem more attractive
our response – we assessed the appropriateness of the basis for the 
adjustments between the adopted ifrs income statement and the 
‘underlying’ income statement and recalculated the adjustments 
with a particular focus on the impact of the foreign exchange rates 
used to translate foreign currency amounts in the ‘underlying’ 
income statement we assessed whether or not the selection of 
forward foreign exchange contracts settled in the year showed any 
evidence of management bias we also assessed i the extent to 
which the prominence given to the ‘underlying’ financial 
information and related commentary in the annual report 
compared to the adopted ifrs financial information and related 
commentary could be misleading ii whether the adopted ifrs  
and ‘underlying’ financial information are reconciled with 
sufficient prominence given to that reconciliation iii whether  
the basis of the ‘underlying’ financial information is clearly and 
accurately described and consistently applied and iv whether  
the ‘underlying’ financial information is not otherwise misleading 
in the form and context in which it appears in the annual report other information
rollsroyce holdings plc annual report 2014 158
our findings – we found no concerns regarding the basis  
of the ‘underlying’ financial information or its calculation and  
no indication of management bias in the settlement of forward 
foreign exchange contracts we consider that there is proportionate 
disclosure of the nature and amounts of the adjustments to  
allow shareholders to understand the implications of the two  
bases on the financial measures being presented 2013 audit 
finding proportionate we found the overall presentation  
of the ‘underlying’ financial information to be balanced  
2013 audit finding balanced
disclosure of the effect on the trend in profit of items which are uneven 
in frequency or amount
the risk – the group’s profits are significantly impacted by items 
such as cumulative adjustments to profit recognised on longterm 
contracts sale and leasebacks of spare engines to joint ventures 
research and development charges reorganisation costs and foreign 
exchange translation which can be uneven in frequency andor 
amount if significant either to the profit for the year or to the trend 
in profit appropriate disclosure of the effect of these items is 
necessary in the annual report and financial statements to provide 
the information necessary to enable shareholders to assess the 
group’s performance
our response – we sought to identify items that affect profit  
and the trend in profit which are uneven in frequency or amount 
at a much lower level than we would otherwise have done and to 
assess the transparency of disclosure of these items
our findings – we identified a number of significant items that  
had affected profit for the year or the prior year that required 
appropriate disclosure in the annual report to enable shareholders 
to assess the group’s performance we found that proportionate 
disclosure of these items had been provided in the annual report 
and financial statements taken as a whole
in reaching our audit opinion on the financial statements we  
took into account the findings that we describe above and those  
for other lower risk areas overall the findings from across the  
whole audit are that the financial statements have been prepared 
on the basis of appropriate accounting policies use mildly cautious 
estimates which are consistent when comparing this year to last 
and provide proportionate disclosure having assessed these 
findings and evaluated uncorrected misstatements in the context  
of materiality and considered the qualitative aspects of the financial 
statements as a whole we have not modified our opinion on the 
financial statements
3 our application of materiality and an overview  
of the scope of our audit
the materiality for the group financial statements as a whole  
was set at £70 million 2013 £86 million determined with reference  
to a benchmark of group profit before taxation normalised to 
exclude the volatility in reported profit due to gains and losses  
on revaluation of foreign currency and other derivative financial 
instruments which could otherwise result in an inappropriate 
materiality level being calculated this materiality measure 
represents 46 of this benchmark and 343 of total reported 
profit before tax we carry out full audit procedures to assess  
the accuracy of the gains and losses on these derivative financial 
instruments which this year amounted to a £13 billion loss as  
part of our audit of the group’s treasury operations
we report to the audit committee i all material corrected identified 
misstatements ii uncorrected identified misstatements exceeding  
£4 million for income statement items and iii other identified 
misstatements that warranted reporting on qualitative grounds
we subjected 33 of the group’s reporting components to audits  
for group reporting purposes and 14 to specified riskfocused audit 
procedures the latter were not individually financially significant 
enough to require an audit for group reporting purposes but did 
present specific individual risks that needed to be addressed this 
work also provided further audit coverage the remaining reporting 
units were subject to analytical procedures by the group audit team
the group operates shared service centres in derby uk and 
indianapolis us the outputs of which are included in the financial 
information of the reporting components they service  
and therefore they are not separate reporting components each  
of the service centres is subject to specified riskfocused audit 
procedures predominantly the testing of transaction processing and 
review controls additional audit procedures are performed at certain 
reporting components to address the audit risks not covered by the 
work performed over the shared service centres
summary audit scope
underlying profit before tax
9
91
total assets
5
12
83
the group audit team instructed component auditors and the auditors 
of the shared service centres as to the significant areas to be covered 
including the relevant risks detailed above and the information  
to be reported back the group audit team approved the component 
materialities which ranged from £03 million to £60 million having 
regard to the mix of size and risk profile of the group across the 
components the work on 29 of the 47 components was performed  
by component auditors and the rest by the group audit team
the group audit team visited 25 component locations in the uk  
the us germany and norway the purpose of which included an 
assessment of the audit risk and strategy telephone conference 
meetings were also held with these component auditors and with 
those of the higher risk components that were not physically visited 
at these visits and meetings the findings reported to the group audit 
team were discussed in more detail and any further work required by 
the group audit team was then performed by the component auditor
revenue
3
7
90
  audits for group reporting purposes
  specified riskfocused audit 
procedures
  gr o u p  l e vel procedures only
independent auditor’s report
continued other information
159
4 our opinion on other matters prescribed by the  
companies act 2006 is unmodified
in our opinion
• the part of the directors’ remuneration report to be audited  
has been properly prepared in accordance with the  
companies act 2006 and
• the information given in the strategic report and directors’ 
report for the financial year for which the financial statements 
are prepared is consistent with the financial statements
5 we have nothing to report in respect of the matters  
on which we are required to report by exception
under isa uk and ireland we are required to report to you if based 
on the knowledge we acquired during our audit we have identified 
other information in the annual report that contains a material 
inconsistency with either that knowledge or the financial 
statements a material misstatement of fact or that is otherwise 
misleading in particular we are required to report to you if
• we have identified material inconsistencies between the 
knowledge we acquired during our audit and the directors’ 
statement that they consider that the annual report and financial 
statements taken as a whole is fair balanced and understandable 
and provides the information necessary for shareholders to assess  
the group’s performance business model and strategy or
• the audit committee report does not appropriately address 
matters communicated by us to the audit committee
under the companies act 2006 we are required to report to you  
if in our opinion
• adequate accounting records have not been kept by the parent 
company or returns adequate for our audit have not been 
received from branches not visited by us or
• the parent company financial statements and the part of the 
directors’ remuneration report to be audited are not in 
agreement with the accounting records and returns or
• certain disclosures of directors’ remuneration specified  
by law are not made or
• we have not received all the information and explanations  
we require for our audit
under the listing rules we are required to review
• the directors’ statement set out on page 164 in relation to going 
concern and
• the part of the corporate governance report on page 59 relating  
to the company’s compliance with the ten provisions of the uk 
corporate governance code 2012 specified for our review
we have nothing to report in respect of the above responsibilities
scope of report and responsibilities
as explained more fully in the directors’ responsibilities statement 
set out on page 93 the directors are responsible for the preparation 
of the financial statements and for being satisfied that they give a 
true and fair view a description of the scope of an audit of financial 
statements is provided on the financial reporting council’s website  
at wwwfrcorgukauditscopeukprivate this report is made solely  
to the company’s members as a body and is subject to important 
explanations and disclaimers regarding our responsibilities 
published on our website at wwwkpmgcomuk
auditscopeukco2014b which are incorporated into this report  
as if set out in full and should be read to provide an understanding 
of the purpose of this report the work we have undertaken and the 
basis of our opinions
jimmy daboo senior statutory auditor 
for and on behalf of kpmg llp  statutory auditor
chartered accountants 
15 canada square  
london e14 5gl 
12 february 2015 other information
rollsroyce holdings plc annual report 2014 160
additional financial information
foreign exchange
foreign exchange rate movements influence the reported income 
statement the cash flow and closing net cash balance the average 
and spot rates for the principal trading currencies of the group are 
shown in the table below
2014 2013 change
usd per gbp
year end spot rate 156 165 5
average spot rate 165 156 6
eur per gbp
year end spot rate 128 120 7
average spot rate 124 118 5
the group’s approach to managing its tax affairs 
the board is involved in setting the group’s tax policies which 
govern the way its tax affairs are managed in summary this means
i  the group manages its tax costs through maximising the  
tax efficiency of business transactions this includes taking 
advantage of available tax incentives and exemptions
ii  this must be done in a way which is aligned with the group’s 
commercial objectives and meets its legal obligations and 
ethical standards
iii  the group also has regard for the intention of the legislation 
concerned rather than just the wording itself
iv  the group is committed to building constructive working 
relationships with tax authorities based on a policy of full 
disclosure in order to remove uncertainty in its business 
transactions and to allow the authorities to review possible 
risks
v  where appropriate and possible the group enters into 
consultation with tax authorities to help shape proposed 
legislation and future tax policy and
vi  the group seeks to price transactions between group 
companies as if they were between unrelated parties  
in compliance with the oecd transfer pricing guidelines  
and the laws of the relevant jurisdictions
the group’s global corporate income tax contribution
around 95 of the group’s underlying profit before tax excluding 
joint ventures is generated in the uk us germany norway finland 
and singapore the remaining profits are generated across more 
than 40 other countries this reflects the fact that the majority of 
the group’s business is undertaken and employees are based in the 
above countries 
in common with most multinational groups the total of all profits 
in respect of which corporate tax is paid is not the same as the 
consolidated profit before tax reported on page 95 the main 
reasons for this are
i  the consolidated income statement is prepared under adopted 
ifrs whereas tax is paid on the profits of each group company 
which are determined by local 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
the group’s total corporation tax payments in 2014 were 
£276 million the level of tax paid in each country is impacted  
by the above in most cases i and ii are only a matter of timing 
and therefore tax will be paid in an earlier or later year as a result 
they only have a negligible impact on the group’s underlying tax 
rate which excluding joint ventures would be 255 the underlying 
tax rate including joint ventures can be found on page 29 this is 
due to deferred tax accounting details of which can be found in 
note 5 to the financial statements the impact of iii will often be 
permanent depending on the relevant tax law
investments and capital expenditure
the group subjects all major investments and capital expenditure 
to a rigorous examination of risks and future cash flows to ensure 
that they create shareholder value all major investments require 
board approval
the group has a portfolio of projects at different stages of their  
life cycles discounted cash flow analysis of the remaining life of 
projects is performed on a regular basis
sales of engines in production are assessed against criteria in  
the original development programme to ensure that overall value  
is enhanced
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 17 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 other information
161
capital structure
£ million 2014 2013 
total equity 6387 6303
cash flow hedges 81 68
group capital 6468 6371
net funds 666 1939
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 mediumterm operational commitments 
and cope with unforeseen obligations and opportunities
the group holds cash and shortterm investments which together 
with the undrawn committed facilities enable it to manage its 
liquidity risk
during the year the group repaid a £200 million eib loan
at year end the group retained aggregate liquidity of £41 billion 
this liquidity included net funds of £666 million and aggregate 
borrowing facilities of £35 billion of which £13 billion remained 
undrawn
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 the only facility to mature in 
2015 is a us83 million note 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 11
credit rating
rating outlook grade
moody’s investors service a3 stable investment
standard  poor’s a stable investment
the group subscribes to both moody’s investors service and 
standard  poor’s for independent longterm credit ratings  
at 31 december 2014 the group maintained investment grade 
ratings from both agencies
as a capitalintensive business making longterm commitments  
to our customers the group attaches significant importance  
to maintaining or improving the current investment grade  
credit ratings
accounting
the consolidated financial statements have been prepared in 
accordance with international financial reporting standards  
ifrs as adopted by the eu
with effect from 1 january 2014 the group has adopted ifrs 10 
consolidated financial statements ifrs 11 joint arrangements and 
ifrs 12 disclosure of interests in other entities the impact of these 
and other changes to ifrs which have not been adopted in 2014  
is included within the accounting policies in note 1
share price
during the year the share price decreased by 32 from 1275 pence 
to 870 pence compared to a 12 decrease in the ftse aerospace 
and defence sector and 3 decrease in the ftse 100 the company’s 
share price ranged from 1289 pence in january to 7795 pence  
in october other information
rollsroyce holdings plc annual report 2014 162
other statutory information
share capital 
on 31 december 2014 1882517856 ordinary shares of 20 pence 
each 22005007762 c shares of 01 pence each and one special 
share of £1 were in issue the ordinary shares are listed on the 
london stock exchange
payment to shareholders
the company issues noncumulative redeemable preference shares 
c shares as an alternative to paying a cash dividend
shareholders can choose to
• redeem all c shares for cash
• redeem all c shares for cash and reinvest the proceeds in the  
c share reinvestment plan crip or
• keep the c shares
the crip is operated by computershare investor services plc the 
registrar the registrar will purchase ordinary shares in the market 
for shareholders electing to reinvest their c share proceeds 
shareholders wishing to participate in the crip or redeem their  
c shares must ensure that their instructions are lodged with the 
registrar no later than 500pm on 1 june 2015 redemption will  
take place on 3 july 2015
at the agm the directors will recommend an issue of 141 c shares 
with a total nominal value of 141 pence for each ordinary share the  
c shares will be issued on 1 july 2015 to shareholders on the register 
on 24 april 2015 and the final day of trading with entitlement  
to c shares is 23 april 2015 together with the interim issue on  
2 january 2015 of 90 c shares for each ordinary share with a total 
nominal value of 90 pence this is the equivalent of a total annual 
payment to ordinary shareholders of 231 pence for each  
ordinary share
further information for shareholders is on page 166 
share class rights
the full share class rights are set out in the company’s articles  
of association articles which are available on the group’s website 
and are summarised below
ordinary shares
each member has one vote for each ordinary share held holders 
of ordinary shares are entitled to receive the company’s annual 
report attend and speak at general meetings of the company  
to appoint one or more proxies or if they are corporations corporate 
representatives and to exercise voting rights holders of ordinary 
shares may receive a bonus issue of c shares or a dividend and on 
liquidation may share in the assets of the company 
c shares
c shares have limited voting rights and attract a dividend of 75 
of libor on the 01p nominal value of each share paid on a twice
yearly basis the company has the option to redeem the c shares 
compulsorily at any time if the aggregate number of c shares 
in issue is less than 10 of the aggregate number of all c shares 
issued or on the acquisition or capital restructuring of 
the company
on a return of capital on a windingup the holders of c shares shall 
be entitled in priority to any payment to the holders of ordinary 
shares to the repayment of the nominal capital paidup or credited 
as paidup on the c shares held by them together with a sum equal 
to the outstanding preferential dividend which will have been 
accrued but not been paid until the date of return of capital
the holders of c shares are only entitled to attend speak and vote 
at a general meeting if a resolution to wind up the company is to  
be considered in which case they may vote only on such resolution
special share
certain rights attach to the special rights nonvoting share special 
share issued to hm government special shareholder subject  
to the provisions of the companies act 2006 the treasury solicitor 
may redeem the special share at par at any time the special share 
confers no rights to dividends but in the event of a windingup it 
shall be repaid at its nominal value in priority to any other shares
certain articles in particular those relating to the foreign 
shareholding limit disposals and the nationality of directors that 
relate to the rights attached to the special share may only be altered 
with the consent of the special shareholder the special shareholder 
is not entitled to vote at any general meeting or any other meeting 
of any class of shareholders
restrictions on transfer of shares and limitations 
on holdings
there are no restrictions on transfer or limitations on the holding 
of the ordinary shares or c shares other than under the articles 
as described here under restrictions imposed by law or regulation 
for example insider trading laws or pursuant to the company’s 
share dealing code the articles provide that the company should  
be and remain under united kingdom control as such an 
individual foreign shareholding limit is set at 15 of the aggregate 
votes attaching to the share capital of all classes taken as a whole 
and capable of being cast on a poll and to all other shares that the 
directors determine are to be included in the calculation of such 
holding the special share may only be issued to held by and 
transferred to the special shareholder or his successor or nominee
shareholder agreements and consent requirements
there are no known arrangements under which financial rights 
carried by any of the shares in the company are held by a person 
other than the holder of the shares and no known agreements 
between the holders of shares with restrictions on the transfer  
of shares or exercise of voting rights no disposal may be made  
to a nongroup member which alone or when aggregated with the 
same or a connected transaction constitutes a disposal of the 
whole or a material part of either the nuclear business or the assets 
of the group as a whole without consent of the special shareholder other information
163
authority to issue shares
at the agm in 2014 authority was given to the directors to allot 
new ordinary shares up to a nominal value of £125353891 
equivalent to onethird of the issued share capital of the company
in addition a special resolution was passed to effect a 
disapplication of preemption rights for a maximum of 5 of the 
issued share capital of the company these authorities are valid 
until the agm in 2015 and the directors propose to renew these 
authorities at that agm it is proposed to seek a further authority 
at the agm in 2015 to allot up to two thirds of the total issued share 
capital but only in the case of a rights issue 
the board believes that this additional authority will allow the 
company to retain the maximum possible flexibility to respond  
to circumstances and opportunities as they arise and to allot new 
c shares up to a nominal value of £500 million as an alternative  
to a cash dividend such authority expires at the conclusion of the 
agm in 2015 the directors propose to renew the authority to allot 
new c shares at the agm in 2015
authority to purchase own shares
at the agm in 2014 the company was authorised by shareholders 
to purchase up to 188030836 of its own ordinary shares 
representing 10 of its issued ordinary share capital
the company announced on 19 june 2014 that as there were no 
material acquisitions planned and reflecting the strength of the 
balance sheet the company would return the proceeds of the sale 
of the energy gas turbines and compressor business to shareholders 
by way of a £1 billion share buyback the buyback commenced on  
10 december 2014
as at 31 december 2014 8215000 ordinary shares of 20p each had 
been purchased at a total aggregate consideration of £6896 million 
representing 044 of the calledup share capital the purchased 
shares have been cancelled 
the authority for the company to purchase its own shares expires 
at the conclusion of the agm in 2015 or 18 months from 1 may 
2014 whichever is the earlier a resolution to renew it will be 
proposed at that meeting
voting rights
deadlines for exercising voting rights
electronic and paper proxy appointments and voting instructions 
must be received by the company’s registrar not less than 48 hours 
before a general meeting
voting rights for employee share plan shares
shares are held in various employee benefit trusts for the purpose 
of satisfying awards made under the various employee share plans 
for shares held in a nominee capacity or if plantrust rules provide 
the participant with the right to vote in respect of specifically 
allocated shares the trustee votes in line with the participants’ 
instructions for shares that are not held absolutely on behalf of 
specific individuals the general policy of the trustees in accordance 
with investor protection guidelines is to abstain from voting in 
respect of those shares
change of control 
contracts and joint venture agreements
there are a number of contracts and joint venture agreements 
which would allow the counterparties to terminate or alter those 
arrangements in the event of a change of control of the company 
these arrangements are commercially confidential and their 
disclosure could be seriously prejudicial to the company 
borrowings and other financial instruments
the group has a number of borrowing facilities provided by various 
banks these facilities generally include provisions which may 
require any outstanding borrowings to be repaid or the alteration 
or termination of the facility upon the occurrence of a change  
of control of the company at 31 december 2014 these facilities 
were less than 24 drawn 2013 35
the group has entered into a series of financial instruments  
to hedge its currency interest rate and commodity exposures  
these contracts provide for termination or alteration in the event 
that a change of control of the company materially weakens the 
creditworthiness of the group
employee share plans
in the event of a change of control of the company the effect  
on the employee share plans would be as follows
• psp – awards would vest pro rata to service in the performance 
period subject to remuneration committee judgement of  
group performance
• apra deferred shares – the shares would be released from  
trust immediately
• sharesave – options would become exercisable immediately  
the new company might offer an equivalent option in exchange 
for cancellation of the existing option and
• share incentive plan sip – consideration received as shares would 
be held within the sip  if possible otherwise the consideration 
would be treated as a disposal from the sip 
major shareholdings
at 12 february 2015 the following companies had notified an 
interest in the issued ordinary share capital of the company in 
accordance with the financial services authority’s disclosure  
and transparency rules
company date notified 
 of issued
ordinary share
capital 
invesco limited 7 july 2014 499
harbor international fund 22 october 2014 402
the capital group companies inc 30 october 2014 499
aberdeen asset managers limited 7 november 2014 516 other information
rollsroyce holdings plc annual report 2014 164
directors
the names of the directors who held office during the year are  
set out on pages 54 and 55 with the exception of iain conn who 
retired on 1 may 2014 and mark morris who left the company  
on 4 november 2014
disclosures in the strategic report
the board has taken advantage of section 414c11 of the 
companies act 2006 to include disclosures in the strategic  
report
pages
• disabled people and employee involvement 44
• the future development performance and position of the group 1 to 53
• the financial position of the group 26 to 31
• rd activities 20 and 21
• the principal risks and uncertainties 50 to 53
going concern
as described on page 161 the group meets its funding 
requirements through a mixture of shareholders’ funds bank 
borrowings bonds and notes at 31 december 2014 the group had 
borrowing facilities of £35 billion and total liquidity of £41 billion 
including cash and cash equivalents of £29 billion and undrawn 
facilities of £13 billion £67 million of the facilities mature in 2015
the group’s forecasts and projections taking into account 
reasonably possible changes in trading performance show  
that the group has sufficient financial resources the directors  
have reasonable expectation that the company and the group  
are well placed to manage their business risks and to continue  
in operational existence for the foreseeable future despite the 
current uncertain global economic outlook
accordingly the directors continue to adopt the going concern basis 
in accordance with the guidance ‘going concern and liquidity risk 
guidance for directors of uk companies 2009’ issued by the frc  
in preparing the consolidated financial statements
political donations
the group’s policy is not to make political donations and therefore 
did not donate any money to any political party during the year 
however it is possible that certain activities undertaken by the 
group may unintentionally fall within the broad scope of the 
provisions contained in the companies act 2006 the act the 
resolution to be proposed at the agm is to ensure that the group 
does not commit any technical breach of the act
during the year expenses incurred by rollsroyce north america 
inc in providing administrative support for the rollsroyce north 
america political action committee rrnapac was us52690 
2013 us69430 pacs are a common feature of the us political 
system and are governed by the federal election campaign act
the pac is independent of the group and independent of any 
political party the pac funds are contributed voluntarily by 
employees and the company cannot affect how they are applied 
although under us law the business expenses are paid by the 
company such contributions do not require authorisation by 
shareholders under the companies act 2006 and therefore do not 
count towards the limits for political donations and expenditure  
for which shareholder approval will be sought at this year’s agm  
to renew the authority given at the 2014 agm
greenhouse gas emissions
our greenhouse gas emissions reporting excludes data from our 
power systems business for 2013 and 2014 as detailed on page 46 
in 2014 our total greenhouse gas ghg emissions from our facilities 
processes and product test and development was 565 kilotonnes 
carbon dioxide equivalent ktco
2
e this represents an increase of  
2 compared with 554 ktco
2
e in 2013 see table below 
total ghg emissions ktco2e 2010 2011 2012 2013 2014
direct emissions – facilities 
processes product test and 
development scope 1 221 218 219 241 231
indirect emissions – facilities 
processes product test and 
development scope 2 349 327 313 313 334
total for facilities processes 
product test and development 570 545 532 554 565
direct emissions – power 
generation to grid scope 1 153 155
indirect emissions – power 
generation to grid scope 2 12 14
total for facilities processes 
product test and development 
and power generation to grid 719 734
normalised by revenue 
emissions ration for facilities 
processes product test and 
development ktco
2
e£m 0058 0056 0049 0048 0047
  we engaged kpmg llp to undertake a limited assurance engagement reporting to 
rollsroyce holdings plc using the assurance standards isae 3000 and isae 3410 over 
the ghg and tri data that have been highlighted in this report with  and as set out  
on page 46 and in the table above their full statement as well as our methodology for 
reporting and the criteria used as set out in our basis of reporting document is 
available on our website at wwwrollsroycecomsustainability the level  
of assurance provided for a limited assurance engagement is substantially lower than  
a reasonable assurance agreement in order to reach their opinion they performed  
a range of procedures over the ghg and tri data including evaluating the work 
performed and conclusions reached by the rollsroyce internal audit team agreeing  
a selection of the data to the corresponding source documentation and reviewing the 
data collation and validation processes at the head office level including formulae used 
and manual calculations performed a summary of the work they performed is included 
within their assurance opinion nonfinancial performance information greenhouse  
gas quantification in particular is subject to more inherent limitations than financial 
information it is important to read the energy ghg and tri data in the context of the 
full limited assurance statement provided by kpmg llp and the reporting criteria  
as set out in the rollsroyce basis of reporting document 
the figures in the table do not include emissions associated with 
our power systems business we are in the process of integrating 
our power systems business into our hse management system 
the figures presented have been adjusted to reflect the disposal of 
our energy gas turbines and compressor business in december 2014 
other statutory information
continued other information
165
entities that were part of the energy business that were not part of 
the disposal have been included 
power generation relates to the operation of commercial gasfired 
power stations and the figures have been adjusted to include 
emissions associated with trigno energy srl
we have used the ghg protocol corporate accounting and 
reporting standard revised edition as of 31 december 2014 data 
gathered to fulfil our requirements under the carbon reduction 
commitment crc energy efficiency scheme the uk government’s 
ghg reporting guidance and department for environment food  
rural affairs’ defra emissions factors for company reporting for 
2014 as the basis of our methodology 
through our active participation in the international aerospace 
environment group we have helped to introduce new guidance on 
greenhouse gas emissions reporting in june to enable consistent 
communications and reporting for aerospace industry companies 
the guidance is a voluntary consensus standard designed to 
supplement the world resources institute’s wri ghg protocol 
it earned the wri ‘built on ghg protocol’ mark after public 
comment consultation
branches
we are a global company and our activities and interests are 
operated through subsidiaries branches of subsidiaries joint 
ventures and associates which are subject to the laws and 
regulations of many different jurisdictions our principal 
subsidiaries and joint ventures are listed on page 152 and 153 
post balance sheet events
there have been no events affecting the group since 31 december 
2014 which need to be reflected in the 2014 financial statements
financial instruments
details of the group’s financial instruments are set out in note 17  
to the financial statements
related party transactions
related party transactions are set out in note 24 to the financial 
statements
information required by uk listing rule 984
there are no disclosures to be made under the above listing rule
management report
the strategic report and the directors’ report together are the 
management report for the purposes of the disclosure and 
transparency rules 418r
disclosure of information to auditors
each of the persons who is a director at the date of approval of this 
report confirms that
i  so far as the director is aware there is no relevant audit 
information of which the company’s auditor is unaware and
ii  the director has taken all steps that he or she ought to have taken 
as a director in order to make himself or herself aware of any 
relevant audit information and to establish that the company’s 
auditor is aware of that information
this confirmation is given and should be interpreted in accordance 
with the provisions of section 418 of the companies act 2006 other information
rollsroyce holdings plc annual report 2014 166
apr 
2015
jun 
2015
aug 
2015
oct 
2015
dec 
2015
feb 
2016
mar 
2016
may 
2015
jul 
2015
sep 
2015
nov 
2015
jan 
2016
22 october 
exentitlement to  
c shares
23 october 
record date for 
entitlement to  
c shares
february 
announcement of full 
year results
march
annual report published
23 april
exentitlement to 
c shares
24 april 
record date for 
entitlement to  
c shares
1 june 500pm 
deadline for receipt of  
c share elections
1 december 500pm
deadline for receipt of  
c share elections
31 december 
financial year end
8 may 1100am 
agm 
qeii centre london 
29 may 
record date for  
c share dividend
1 july 
payment of c share dividend
1 july 
allotment of c shares
3 july 
payment of c share redemption monies
10 july 
purchase of ordinary shares for crip 
participants at the latest 
31 july 
announcement of halfyear results
13 november 
record date for c share 
dividend
4 january 
payment of c share dividend
4 january 
allotment of c shares
6 january 
payment of c share redemption 
monies
13 january 
purchase of ordinary shares for 
crip participants at the latest
managing your shareholding
your shareholding is managed by computershare investor  
services plc the registrar when making contact with the  
registrar please quote your shareholder reference number srn  
an 11digit number that can be found on the righthand side of  
your share certificate or in any other shareholder correspondence  
it is very important that you keep your shareholding account  
details up to date by notifying the registrar of any changes in  
your circumstances
you can manage your shareholding at wwwinvestorcentrecouk 
speak to the registrar on 44 0870 703 0162 830am to 530pm 
monday to friday or you can write to them at computershare investor 
services plc the pavilions bridgwater road bristol bs13 8ae
payments to shareholders
the company makes payments to shareholders by issuing 
redeemable c shares of 01 pence each you can still receive cash  
or additional ordinary shares from the company providing you 
complete a payment instruction form which is available from the 
registrar once you have submitted your payment instruction form 
you will receive cash or additional ordinary shares each time the 
company issues c shares if you choose to receive cash we strongly 
recommend that you include your bank details on the payment 
instruction form and have payments credited directly to your bank 
account this removes the risk of a cheque going astray in the post 
and means that cleared payments will be credited to your bank 
account on the payment date 
share dealing
the registrar offers existing shareholders an internet dealing 
service at wwwukcomputersharecominvestorsharedealingasp 
and a telephone dealing service 44 0870 703 0084 the service is 
available during market hours 800am to 430pm monday to friday 
excluding bank holidays the fee for internet dealing is 1 of the 
transaction value subject to a minimum fee of £30 the fee for 
telephone dealing is 1 of the transaction plus £35 please note that 
in addition to dealing fees stamp duty of 05 is payable on all 
purchases other share dealing facilities are available but you 
should always use a firm regulated by the financial conduct 
authority fca you can check the fca register at  
wwwfcaorgukregister
your share certificate
if you sell or transfer your shares you must ensure that you have  
a valid share certificate in the name of rollsroyce holdings plc 
if you place an instruction to sell your shares and cannot provide a 
valid share certificate the transaction cannot be completed and you 
will be liable for any costs incurred by the broker share certificates 
previously issued by either rollsroyce group plc or rollsroyce plc 
are invalid and should be destroyed if you are unable to locate your 
share certificates please inform the registrar immediately 
american depositary receipts adr
adr holders should contact the depositary the bank of new york 
mellon by calling 1 888 269 2377 toll free within the us or 
emailing shrrelationscpushareownerservicescom
financial calendar 20152016
shareholder information other information
167
warning to shareholders – boiler room fraud
we are aware that some shareholders might have received 
unsolicited phone calls or correspondence concerning investment 
matters these are typically from overseas based ‘brokers’ who offer 
to sell them what often turn out to be worthless or high risk shares 
in us or uk investments such operations are known as ‘boiler 
rooms’ and these ‘brokers’ can be very persistent and extremely 
persuasive you should always check that any firm calling you  
about investment opportunities is properly authorised by the fca 
by checking their register at wwwfcaorgukregister if you need  
to contact the fca urgently you should call their consumer helpline  
on 0800 111 6768 overseas callers dial 44 20 7066 1000 if you 
deal with an unauthorised firm you will not be eligible to receive 
payment under the financial services compensation scheme  
you will find lots of useful advice and information about  
protecting yourself from investment scams on the fca website 
wwwfcaorgukconsumers
remember the golden rule – if it sounds too good to be true  
it probably is 
visit rollsroyce online
visit wwwrollsroycecominvestors to find out more about the 
latest financial results the share price payments to shareholders 
the financial calendar and shareholder services
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dividends paid on c shares held
c share calculation period c share dividend rate 
record date for 
c share dividend payment date
1 july 2014 – 31 december 2014 0263 14 november 2014 2 january 2015
1 january 2014 – 30 june 2014 0233 2 june 2014 1 july 2014
previous c share issues
apportionment values cgt apportionment
issue date
no of 
c shares issued
per ordinary
share
record date
for
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to c shares
latest date
for receipt of
payment
instruction
forms by
registrar
price of
ordinary
shares on first
day of trading
 p
value of 
c share issues
per ordinary
shares p
ordinary
shares  c shares 
date of
redemption
of c shares
crip
purchase
date
crip
purchase
price p
2 january
2015 90
24 october
 2014
1 december
2014 864250 90 9897 103
6 january
2015
9 january
2015 863372
2 july
2014 134
25 april 
2014
2 june
2014 1066685 134 9876 124
3 july
2014
9 july
2014 1058380
for earlier c share issues please refer to the group’s website
analysis of ordinary shareholders at 31 december 2014
type of holder
number of 
shareholders
 of total 
shareholders
number 
of shares
 of total 
shares
individuals 194995 9566 97855322 520
institutional and other investors 8857 434 1784695534 9480
total 203852 10000 1882517856 10000
size of holding
1 – 150 64561 3167 6116140 032
151 – 500 101779 4993 27532323 146
501 – 10000 35567 1745 57568059 306
10001 – 100000 1290 063 35524258 189
100001 – 1000000 439 021 152132412 808
1000001 and over 216 011 1603644664 8519
total 203852 10000 1882517856 10000
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rollsroyce holdings plc annual report 2014 168
glossary
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agm annual general meeting
ana all nippon airways
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articles articles of association of rollsroyce holdings plc
c shares noncumulative redeemable preference shares
ca commercial and administrative
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ceo chief executive officer
cfo chief financial officer
cgu cashgenerating unit
co
2
carbon dioxide
company rollsroyce holdings plc
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elt executive leadership team
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fx foreign exchange
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global code global code of conduct
group rollsroyce holdings plc and its subsidiaries
hmrc hm revenue  customs
hse health safety and environment
ic instrumentation and control
iab international advisory board
ias international accounting standards
ifric international financial reporting interpretations committee
ifrs international financial reporting standards
kpis key performance indicators
ktco
2
e kilotonnes carbon dioxide equivalent
libor london interbank offered rate
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lng liquefied natural gas
nci noncontrolling interest
no
x
nitrogen oxides
oci other comprehensive income
oe original equipment
oecd organisation for economic cooperation and development
pbt profit before tax
psp performance share plan
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of chemicals
registrar computershare investor services plc
rrps rollsroyce power systems ag 
rrsas risk and revenue sharing arrangements 
sfo serious fraud office
sip share incentive plan
so x sulphur oxides
stem science technology engineering and mathematics
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tri total reportable injuries
tsr total shareholder return
uav unmanned aerial vehicle
usdus united states dollar
utcs university technology centres cover image transatlantic air exchanges  airline routes between north america and europe félix pharanddeschênesglobaïa
this page front fan from a trent 1000 aero engine
rollsroyce designs develops manufactures and services 
integrated power systems for use in the air on land and at sea 
we are one of the world’s leading producers of aero engines for large civil aircraft and corporate 
jets we are the second largest provider of defence aero engines and services in the world 
for land and sea markets reciprocating engines and systems from rollsroyce are in marine 
distributed energy oil  gas rail and offhighway vehicle applications in nuclear  we have a strong 
instrumentation product and service capability in both civil power and submarine propulsion
designed and produced by  
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designed and produced by  
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chainofcustody certified rollsroyce holdings plc annual report 2014
© rollsroyce plc 2015
rollsroyce holdings plc 
registered office  
62 buckingham gate 
london 
sw1e 6at
t 44 020 7222 9020 
wwwrollsroycecom
company number 7524813
rollsroyce holdings plc
annual report 2014
better power for a changing world


Summary:
 14 annual report 2014 rollsroyce holdings plc
strategic report
chief executive’s review
rollsroyce is in business 
to deliver better power 
for a changing world  
the integrated power 
systems that we develop 
build and maintain 
address the increasing 
global demand for 
transport and energy
john rishton 
chief executive
 we continually 
seek to reduce cost to remain 
competitive and to generate 
the funds we need to invest 
in future growth” 15
strategic report
as society becomes more integrated 
population expands and the world becomes 
more affluent the requirement for the  
type of advanced engineering solutions  
we provide will grow these are longterm 
trends that require longterm investment 
and present us with the opportunity for 
longterm profitable growth 
the path to growth will not always be 
smooth for rollsroyce 2014 has proved  
a challenging year for reasons that i will 
explain in some detail during 2014 group 
underlying revenue was 6 lower than in 
2013 and underlying profit before tax 
declined by 8 however the group order 
book grew to a new record of £737 billion 
demonstrating the confidence our 
customers continue to place in our 
technology and the growth that lies ahead  
it is encouraging that the defence aerospace 
order book increased for the first time since 
2010 with continued growth in the order 
books of civil aerospace and power systems
in this review i will explain why we believe 
our business model is robust i will describe 
the transformation we are driving through 
the group and the reasons for our 
confidence in the future i will also outline 
the challenges we face and the decisive 
action we are taking to accelerate a return 
to our longterm trend of profitable growth
so let me start with our business model  
we invest in technology in order to meet  
our customers’ current and future needs 
through constant innovation we create the 
opportunity to grow sales and expand our 
market share we earn revenue both from 
the sale of original equipment and from 
servicing the power systems we produce 
we continually seek to reduce cost to remain 
competitive and to generate the funds we 
need to invest in future growth
we have evolved and simplified our strategy 
to focus on the core areas of customer 
innovation and profitable growth 
customer we put customers at the heart of 
the organisation we understand their needs 
and then focus relentlessly on delivery
innovation is at the core of rollsroyce  
and drives a culture of continuous 
improvement delivering relevant 
innovation is critical to meeting our 
customers’ current and future needs
profitable growth  by focusing on our 
customers and presenting them with a 
competitive portfolio of innovative products 
and services we create the opportunity  
for longterm profitable growth
this sharper focus enables us to drive our 
business model harder and will over time 
deliver improving financial returns
from its earliest days rollsroyce has 
addressed a range of markets where 
demand exists for advanced engineering 
solutions our 1906 articles of association 
describe the business as producing 
technology for use in the air on land and at 
sea more than a century later this approach 
remains relevant and we run our business 
through the two divisions of aerospace and 
land  sea that you will see described in the 
pages of this annual report 
there is an industrial commercial and 
strategic logic that ties these two divisions 
together and generates value for the group 
industrially our knowledge of advanced 
engineering applies across both our 
divisions worldclass technology is required 
by all of our customers and as the power 
systems we produce become more 
sophisticated a deep understanding  
of materials science electronics data 
management and aftermarket services  
are increasingly important in every part  
of the group
better power
our land  sea division is well positioned 
to meet the requirements for cleaner 
power that will be driven by future growth 
in world trade
£74bn our order book 
increased in 2014 to a record level
commercially we and our competitors 
recognise the requirement of a broad 
portfolio and exposure to differing business 
and investment cycles it is not a coincidence 
that there is no pure aerospace power 
system company in the world
the scale represented by our two divisions  
is important in maintaining a strong 
balance sheet and protecting our 
investment grade rating scale has also 
enabled us to maintain a global rd 
network comprising 31 university 
technology centres and seven advanced 
manufacturing research centres these 
facilities envisage develop and test 
emerging technologies that have 
applications across our portfolio our 
breadth increases market access and 
generates opportunity for example our 
nuclear business is relatively small but 
extends our influence and gives us access  
to the highest levels of government 
internationally  16 rollsroyce holdings plc annual report 2014
strategic report
strategically our two divisions address 
markets where longterm growth is  
assured and where increasingly 
sophisticated engineering solutions will  
be required we believe both aerospace  
and land  sea markets offer attractive 
returns and play to our strengths 
the future growth of air travel is widely 
understood and reflected in our £63 billion 
civil aerospace order book to give this some 
perspective in the past decade we have 
delivered 1600 trent engines in the decade 
ahead we expect to deliver 4000 all of the 
engines in this expanding fleet will produce 
service revenues that will extend for 
decades to come our land  sea division  
is well positioned to meet the requirements 
for cleaner power that will be driven by 
future growth in world trade 90 of  
which is carried by sea urbanisation 
population growth and tighter 
environmental regulations
across the group we invest in technology 
that is continually setting new standards  
in power efficiency and environmental 
performance the complexity of what we  
do creates barriers to entry and generates 
new market opportunities put simply there 
will be significant longterm growth in 
demand for the complex integrated power 
systems we deliver and there are not many 
companies with the ability to do what we 
can do
despite these fundamental strengths  
in 2014 our shortterm performance has 
been negatively affected by a number of 
factors in aerospace our defence revenues 
fell by 20 reflecting reduced government 
defence spending in our main markets of 
north america and europe in land  sea 
slowing growth in a number of our major 
markets including continental europe 
south america and china has caused some 
customers to delay or cancel orders at the 
same time sharp declines in the price of oil 
and other commodities have led customers  
to reduce or defer expenditure especially  
in the oil  gas mining and construction 
industries
in response to these adverse conditions  
we have accelerated progress on the 4cs  
of customer concentration cost and cash 
– with a particular emphasis on cost this 
decisive action is driving a transformation 
of the business that will in time make us  
a stronger group and hasten our return  
to profitable growth 
on customer we continue to make good 
progress improving quality delivery 
reliability and responsiveness the 
characteristics our customers tell us they 
value most the results can be seen across  
a wide range of programmes at group level 
there has been a further improvement in 
delivery times – particularly for spare parts 
in aerospace the trent 1000 that powers  
the boeing 787 dreamliner has achieved  
an industryleading 999 engine dispatch 
reliability after completing over 500000 
flying hours in service since launch we  
have doubled the time on wing for both  
our trent 700 and trent 800 fleets in our 
civil small and medium engines business 
we achieved a 57 percentage points 
improvement in restoring operational 
availability for business jets in the past year
recognising the progress we have made 
airbus has presented us with its supply 
chain and quality improvement award  
the us government’s defense logistics 
agency recognised rollsroyce as a ‘first  
tier supplier’ from among 153 companies 
and we were awarded joint first place by 
aviation international news for the quality 
of our business aircraft support
in land  sea our delivery on time to 
marine customers has improved by  
33 percentage points since 2012 marine 
also signed its first commercial longterm 
service agreement as the power systems we 
deliver in land  sea become more complex 
we see further opportunities to expand our 
aftermarket activities building on the data 
and service capabilities we have developed 
in aerospace in power systems we opened 
an additional logistics centre in singapore 
enabling a 5 improvement in the 
availability of spare parts and setting  
a new standard for customer service 
improving performance in this way 
strengthens the relationship we have with 
chief executive’s review
continued
innovation
we invest in technology in order to meet 
our customers’ current and future needs 
through constant innovation we create  
the opportunity to grow sales and expand 
our market share 
more information  
on pages 20 to 21
 we continue  
to make good progress 
improving quality 
delivery reliability  
and responsiveness” 17
strategic report
our five priorities 
for the group
during 2014 we outlined the priorities 
for the business going forward
fix the basics the 4cs
this is about improving the bedrock of the 
organisation focusing on our customers  
and their needs concentrating on what we 
are good at attacking cost across the group 
and managing our cash position effectively
culture
we want a businessorientated innovative 
and costconscious culture one that 
understands our customers and delivers on 
their behalf we must have a culture where 
ethical behaviour is fully embedded so that 
we don’t just win but win right
civil widebody
we are building on success in the last decade 
we delivered 1600 trents and in the next we 
will deliver 4000 we power over 50 of new 
widebody aircraft our next generation 
engines advance and ultrafan™ will help 
maintain our leading market position
civil narrowbody
narrowbodies represent 70 of the civil 
aircraft market by volume and 50 by value 
we have the requisite skills and technology  
to return to this market and are determined 
to do so when the opportunity arises  
this is important in the longer term  
not just because of the scale this market 
segment offers but also because of the 
chance it presents to develop greater 
customer intimacy
mediumspeed reciprocating engines
mediumspeed reciprocating engines power 
the vast majority of the marine vessels that 
we design and equip we have worldclass 
technology but it is characteristic of this 
industry that the engine supplier is 
particularly well placed to pull through  
other technologies so our lack of scale  
in mediumspeed engines confers a 
disadvantage we need to address
our customers and generates opportunities 
for us to secure additional business 
concentration means deciding where  
we want to invest and where not to
in august we were pleased to acquire 
daimler’s 50 shareholding in rollsroyce 
power systems for £194 billion power 
systems adds scale and capability to our 
reciprocating engines portfolio it has 
outstanding technology operates in 
longterm growth markets and has  
proved a valuable addition to our  
land  sea division
we also divested a significant business in 
december completing the sale of our energy 
gas turbines and compressor business to 
siemens this is a business that has excellent 
technology and a talented workforce but it 
lacks the scale required to prosper as part of 
rollsroyce siemens has a far bigger power 
generation business and is a more suitable 
owner the sale generated proceeds of 
around £1 billion we are returning this to 
shareholders by way of a share buyback that 
started in december 2014
turning to cost we have taken action to 
improve cost performance in every part of 
the business and in every cost category we 
have made good progress in some areas and 
as a result group gross margins improved 
by 17 percentage points in 2014 in defence 
we have improved margins despite declining 
revenue in land  sea we closed five plants 
and are rationalising other parts of the 
business for example we are consolidating 
production of steering gear in norway and 
waterjets into finland we are driving down 
cost by improving quality simplifying 
logistics reducing waste and adopting 
processes that allow us to make things 
better and faster 
in november we announced a restructuring 
programme in our aerospace division and 
central functions which is expected to 
reduce headcount by 2600 by the end of 
2014 545 people had left the business with 
the majority of the reductions expected in 
2015 this programme is expected to result 
in restructuring charges of around  
£120 million of which £56 million was 
recognised in our 2014 results  
we anticipate annualised cost benefits of 
around £80 million from 2016 onwards 
with £50 million in benefits expected in 
2015 our total aerospace 2014 
restructuring activities cost £164 million  
of which £139 million was underlying
however in a complex and highlyregulated 
business we recognise that it will take  
some time for the full benefit of our cost 
programmes to feed through there are  
also a number of headwinds in our civil 
aerospace business associated with our 
future growth for example we have 
invested in the capacity required to deliver 
our record order book but delay in a number 
of our customers’ major programmes has 
meant some of this new capacity has come 
on stream before it is needed leaving us 
with underutilised production facilities  
we have also constructed a number of new 
worldclass facilities to replace older less 
productive plants for a period of transition 
we are carrying the cost of both the old  
and new facilities
group restructuring costs in 2014 were 
£188 million of which £149 million was 
underlying over the past two years the 
group has reduced indirect headcount  
by 18 we expect group underlying 
restructuring costs to be between £90  
and £100 million in 2015
cost performance will continue to be a 
major focus and as we rationalise and 
transform the group we have targeted a 
20 reduction in our footprint and a 
doubling of our lowercost country sourcing 
by 2020 we are now accelerating progress 
towards these targets 
cash we continue to focus on improving 
our free cash flow particularly in the face  
of nearterm headwinds our programmes 
to reduce product and aftermarket costs 
lower our headcount and to reduce our 
footprint all require upfront investment  
but will deliver cost and cash benefits in  
the medium term as revenue increases  
we expect to reduce our capital expenditure 
and rd as a percentage of sales the 
customer progress highlighted earlier is 
improving our operational performance  combined with increasing volumes this will 
enable us to reduce our inventory buffers 
while a great deal of attention has been 
focused quite rightly on the financial 
performance of the group it is important  
to recognise significant achievements in 
2014 that will support the group’s future 
profitable growth
1500 trent xwb 
engines are on order the first 
engines were delivered to  
qatar airways in 2014
in aerospace in december we were 
delighted to celebrate the first delivery of the 
trent xwb powering the new airbus a350 
xwb for launch customer qatar airways 
the trent xwb is the most fuel efficient 
large aero engine operating in the world 
today i would like to congratulate everyone 
at rollsroyce who has worked so hard  
over many years to support the successful 
delivery of this exceptional aircraft for 
which rollsroyce is the sole engine provider
at the farnborough international airshow  
in july we announced the seventh member 
of the trent engine family the trent 7000 
that will power the new airbus a330neo 
this new engine will incorporate technology 
from our most recent trents and will deliver 
a 10 improvement in specific fuel 
consumption and halve the noise energy 
output compared to the current engine on 
the a330 rollsroyce will be the exclusive 
engine supplier on the a330neo due to 
enter service in 2017
we have continued to bring new worldclass 
facilities on stream in 2014 these include 
the opening of our new advanced disc 
manufacturing facility at washington in  
the uk and the first production aerofoil 
from our new advanced aerofoil 
manufacturing facility at crosspointe 
virginia in the us 2014 saw the 
inauguration of our new large engine test 
bed in dahlewitz germany and the opening 
of a new marine customer training centre 
outside rio de janeiro in brazil
we marked a major milestone in the 
development of carbon titanium cti fan 
blades with the launch of a test flight 
programme on board a boeing 747 flying 
test bed cti technology delivers lighter fan 
blades that will be incorporated into future 
aero engines combined with a composite 
fan casing it forms a system that can reduce 
weight by up to 1500lb per aircraft the 
equivalent of seven passengers
in land  sea we have also continued to 
strengthen our portfolio bringing new 
technology to market across the division  
in september we unveiled the first of a  
new family of mediumspeed reciprocating 
engines for use on land and at sea the  
new bergen b3345 offers a 20 increase  
in power per cylinder while reducing fuel 
consumption emissions and operating 
costs it is our first new product to combine 
the engineering strengths of our traditional 
bergen engines operation and our new 
power systems business because of its 
greater power range the new engine 
increases our addressable market in 
mediumspeed engines by 20 
in the naval market two important new 
ships powered by our mt30 gas turbines 
were officially named the multimission 
destroyer uss zumwalt and the royal navy 
aircraft carrier queen elizabeth
in the rail sector power systems has 
developed an mtu hybrid powerpack that 
generates additional power through the 
braking control system this technology 
offers a fuel saving of up to 25 with a 
proportional reduction in emissions 
for offhighway vehicles mtu’s latest  
series 4000 engine has improved fuel 
consumption by 5 for a typical application 
this can represent a saving of up to 100000 
litres of fuel and reduction of 350 tonnes of 
co
2 emissions each year 
technology
we have continued to invest in our  
land  sea division bringing new 
technology to market across the portfolio 
in september we unveiled the first of a 
new family of mediumspeed reciprocating 
engines for power on land and at sea  
the new bergen b3345 offers a 20 
increase in power per cylinder while 
reducing fuel consumption emissions  
and operating costs 
more information 
on page 38
rollsroyce holdings plc annual report 2014 18
strategic report
chief executive’s review
continued mtu’s latest series 4000 
engine has improved fuel 
consumption by
5
in our nuclear business we were 
encouraged that in october the european 
commission approved the construction  
of the first new commercial nuclear power 
station to be built for a generation in  
the uk at hinkley point in somerset the 
commission concluded that new nuclear 
power is vital for britain’s energy security 
and will be key to reducing carbon emissions 
from the uk’s electricity industry hinkley 
point c is the first of at least 11 new reactors 
planned for the uk for which rollsroyce  
is well positioned to supply components 
systems and engineering services
31 university technology 
centres this research network 
extends relationships we have 
with worldleading universities
as the chairman said we continued to 
strengthen the governance of the group  
we expect the highest standards of 
behaviour from our employees and we  
have been explicit that we will not tolerate 
business misconduct of any sort the 
serious fraud office investigation into 
concerns about bribery and corruption 
involving intermediaries in overseas 
markets continues and we are cooperating 
fully with the investigating authorities  
lord gold is heading a review of our process 
and procedures regarding compliance and 
business ethics 
this year our global code of conduct has 
been ranked by the red flag group as third 
among those within the ftse 100 companies 
that were assessed following the rollout  
of our global code dilemmabased ethics 
training has been deployed to all  
our employees to ensure continuing 
attention on this important topic training 
in ethics and compliance will continue in 
2015 all employees will be required to 
certify annually that they have completed 
their training we will be setting similar 
standards for our supply chain through the 
publication of our supplier code of conduct 
responding to the difficult circumstances  
of 2014 has required fortitude and resilience 
from the talented men and women who 
work for rollsroyce i would like to thank 
them for their hard work and for the 
enthusiasm i encounter wherever in the 
company i travel i am grateful to our 
suppliers and partners who make such an 
important contribution to rollsroyce and 
share our commitment to continuous 
improvement i would like to thank our 
customers who continue to place their faith 
in our technology meeting their current  
and future needs is our highest priority
this year we held our inaugural trusted  
to deliver excellence awards to recognise 
rollsroyce teams who have achieved 
outstanding results for their customers  
the imagination passion and ability  
to execute demonstrated by all the finalists 
is inspiring you can read more about these 
awards on pages 42 to 43
returning our group to profitable growth 
will demand firm resolve and commitment 
and will take some time however as i have 
described in this review the business 
fundamentals of rollsroyce remain sound 
we have the right strategy and we are clear 
about the action that is required everything 
i know about this great company makes  
me confident that the team will rise to  
the challenge
john rishton
chief executive
12 february 2015
 strategically  
our two divisions  
address markets  
where longterm growth  
is assured and where 
increasingly sophisticated 
engineering solutions  
will be required”
19
strategic report