©rollsroyce plc 2005
rollsroyce group plc
65 buckingham gate
london
sw1e 6at
wwwrollsroycecom
® ®
annual report 2004 
rollsroyce group plc annual report 2004  all images © rollsroyce plc 2005
typeset by charnwood t echnic art limited
designed by radley yeldar london
printed by st ives burrups limited
all photography by rollsroyce except
p12 bottom leftboeingp14 rightlockheed martinp15 leftbae systems
this report is printed on revive special silk
®
company profile 

01 group financial highlights 
02 rollsroyce at a glance 
04 chairman’s statement 
05 chief executive’s review 
18 review of operations 
26 finance director’s review 
32 board of directors 
33 report of the directors 
41 directors’ remuneration report 
52 group profit and loss account 
53 balance sheets 
54 group cash flow statement 
56 group statement of total 
recognised gains and losses 
56 group historical cost profits 
and losses 
56 reconciliations of movements 
in shareholders’ funds 
57 notes to the financial statements 
82 principal subsidiary undertakings 
84 principal joint ventures 
86 directors’ responsibilities 
86 independent auditors’ report 
87 group five year review 
88 shareholder information 
rollsroyce group plc 
registered office 
65 buckingham gate 
london sw1e 6at 
telephone 
020 7222 9020 
website 
wwwrollsroycecom 
company number 
4706930 
shareholder enquiries 
computershare investor services plc 
po box 82 
the pavilions 
bridgwater road 
bristol bs99 7nh 
general helpline 
0870 702 0111 
bshare helpline 
0870 703 0162 
rollsroyce is a global company 
providing power for use on land 
at sea and in the air the company 
 
has a balanced business portfolio
 
with leading positions in civil
 
and defence aerospacemarine
 
and energy markets 
there are some 54000 rollsroyce 
gas turbines in service and these 
generate a demand for highvalue 
services throughout their 
operational livesrollsroyce is 
 
a technology leader employing 
35400 people and operating in 
50 countries 
rollsroyce group plc annual report 2004  


group ﬁnancial highlights
 
£2 1 3 b n 
order book – ﬁrm and announced 
2003 £187bn 
£5 93 9m
 
group turnover 
2003 £5645m 
£345 m 
underlying proﬁt before tax 
2003 £285m 
£3 06m 
proﬁt before tax 
2003 £180m 
£5 60 m 
average net debt 
2003 £950m 
5 0 p  14

underlying earnings per share 
2003 1220p 
0 7 p  12

basic earnings per share 
2003 704p 
excluding exceptional and nontrading items deﬁned in note 2 
01 rollsroyce group plc annual report 2004  rollsroyce at a glance
 
group 
£5 93 9m
 
turnover 
15 0 
countries served 
35400 
employees 
overview 
rollsroyce is a global group 
with ofﬁces service centres 
or manufacturing bases in 
50 countriesthe group invests 
in technology and capabilities 
that can be exploited in 
each of its market sectors 
civil aerospace defence 
aerospace marine and energy 
2004 highlights 
–		21 per cent gain in underlying 
pretax proﬁts 
–		41 per cent reduction in average 
net debt 
–		conti nued growth in 
services revenues 
–		r ecord yearend order book 
rollsro y ce is a strong gr oup 
with rev enues balanced betw een 
original equipment sales and 
high v alueadded services  
our four business markets are 
united by common technology 
focused on the gas turbine 
we create value by investing in 
technology once and using it 
many times 
14 
rollsroyce group plc annual report 2004 02  civil aer marine 
23 8 
ospace defence aerospace energy 
£3 040m £1 374 m £963 m £489m 
51  16  
of group sales of group sales of group sales of group sales 
2004 highlights	 2004 highlights 2004 highlights 2004 highlights 
–		t rent 1000 engine – selected by – conﬁrmation of tranche 2 of – 	 boeing for the new 7e7 dreamliner euroﬁghter typhoon worth more 

aircraft now renamed the 787 than £750 million to rollsroyce 

and selected for the ﬁrst two orders 
– joint strike fighter programme 

lockheed martin selected – second consecutive year of record 
mt30 gas turbines and kamewa order intake 
waterjets for the ﬁrst prototype 
– trent gas compression packages 
ship in the us navy’s littoral 
ordered for the dolphin energy 
of 787s including ﬁrst delivery 
milestones achieved – successful
 
combat ship programme 
limited gas pipeline and 20 rb211 
position for all nippon airways 	
testing of f136 engine and
 – 	orders worth £166 million were 	 packages ordered for the 
–		t rent 900 engine for the airbus operation of the rollsroyce taken for design and propulsion westeast china pipeline project 
a380 achieved its airworthiness liftsystem® equipment packages in the 
–		i ndustrial trent launched into the 
certiﬁcate on schedule in october 
– successful conclusion of 
offshore sector in the last six 
oil  gas market
 
paving the way for ﬁrst ﬂight early 
preliminary design review of the 
months of 2004
 
in 2005	 
tp400d6 engine for the airbus – 	 – new costeffective package 
rollsroyce was selected to supply 	
design completed for the 
–		m alaysia airlines became the ﬁfth a400m transport aircraft nine gas turbine generator sets for 
industrial trent 
airbus a380 customer to select 
– selection by oman of the 
the republic of korea navy’s kdx 
the trent 900 engine 
rtm322 engine to power 
iii destroyer programme 
– rb211 was world market share 
leader for oil  gas applications 
–		chi na eastern ordered trent 700 20 nh90 helicopters – the uk ministry of defence 
in its size range 
acting on behalf of the uk france engines to power 20 airbus 
– maiden ﬂight of the br710
and norway selected rollsroyce 
– geographic footprint of installed 
a330 aircraft 
powered nimrod mra4 
to provide the nato submarine 
product base in the oil  gas sector 
–		internati onal aero engines reconnaissance aircraft 
rescue system 
continued to expand 
delivered the 2500th v2500 and 
– over 1100 military engines and 
ended the year with 950 engines 
1800 military engine modules are 
– the group penetrated new 
– record year for longterm service 
in the ﬁrm order book and a 
now covered by mission ready 
markets with offshorederived 
agreement contracts 
further 1100 option orders 
management solutions longterm 
technology including coastal 
service contracts	 
protection vessels for norway 
and france and pollution control 
variants for india 
note sales analysis excludes financial services £73 million 
rollsroyce group plc annual report 2004 03  i am delighted to have joined rollsroyce at a time when the
 
group is well positioned to take advantage of past investments
 
our ﬁnancial results for 2004 demonstrate continuing 
improvement proﬁts increased by 21 per cent earnings per share 
by 19 per cent and debt levels were signiﬁcantly down on last year 
the directors are proposing that the group maintains its payment 
to shareholders 
in 2004 the group celebrated the centenary of the ﬁrst
 
meeting between charles rolls and henry royce during its 
 
100year history rollsroyce has created one of the world’s most
 
powerful and renowned brands and is today ﬁrmly established 
 
as a successful international powersystems business
 
the group has developed a portfolio of products and 
services with leading market positions and is particularly well 
represented on the new generation of platforms that will shape 
the powersystems market for the next 50 yearsthe longterm 
nature of these programmes and the increasing number of engines 
in service should generate more stable and yet growing returns for 
the group over many years 
i would like to thank my fellow board members for their 
support and their contribution to this success i would also like to 
pay tribute to the commitment and excellence of our management 
and workforce at a time of considerable change for the group 
i owe a particular debt to euan baird our former chairman 
who retired in june following an illness he made a very strong 
contribution in the short period he served as chairman and i wish 
him well for the future i would also like to thank lord moore very 
much for his skilful stewardship of the group over the last year and 
for the contribution he made to the board as a nonexecutive director 
there have been a number of other important 
 
board changes
 
sir john taylor joined the board as a nonexecutive director 
last november and his technical and engineering background will 
be invaluable to the group 
iain conn was appointed as a nonexecutive director 
 
last month and will bring to the board a wealth of international
 
business experience
 
sir robin nicholson will be retiring at the conclusion of 
our next annual general meeting and i would like to pay particular 
tribute to the signiﬁcant and lasting contribution he has made over 
the many years he has served on the board sir john weston retired 
in december and again i would like to thank him for his support 
and contribution in his time as a nonexecutive director 
rollsroyce is emerging from a period of difﬁcult market
 
conditions recent results demonstrate the effectiveness of our
 
business model and its ability to generate value for shareholders
 
while market conditions remain challenging we look forward to
 
the future with conﬁdence
 
business model and its 
l 
chairman’ s statement 
simon robertson 
these results demonstrate 
the effectiveness of our 
ability to generate value 
for shareholders 
10 0 
2004 marked 100 years since 
the historic ﬁrst meeting of 
charles rolls and henry royce 
the group celebrated this 
with events around the wor d 
simon robertson chairman
 
february 9 2005
 
rollsroyce group plc annual report 2004 04  1995 
1996 
1997 
1998 
3220 
3887 
4323 
4471 
1999 4634 
2000 
2001 
5864 
6328 
2002 
2003 
5788 
5645 
2004 5939 
sales £m 
1994 27000 
2004 54000 
installed base of 
1995 
1996 
1997 
1998 
75 
91 
101 
106 
1999 113 
2000 
2001 
126 
146 
2002 
2003 
148 
156 
2004 169 
£000 
1995 
1996 
1997 
1998 
76 
77 
101 
126 
1999 132 
2000 
2001 
145 
167 
2002 
2003 
171 
187 
2004 213 
£bn 
1995 
1996 
1997 
1998 
14 
16 
18 
20 
1999 21 
2000 
2001 
26 
29 
2002 
2003 
30 
34 
2004 38 
£bn 
includes 100 per cent of repair 
sir john rose 
a robust business model 
during 2004 
gas turbines in service 
sales per employee 
order book firm and announced service sales 
and overhaul joint ventures 
chief executive’ s review 
our steady evolution 
as a global company 
based on our own state
oftheart technology 
and a consistent strategy 
was evident in many 
encouraging respects 
our business performance in 2004 improved our ﬁnancial position 
across the boardwe continued to win new orders and to 
enhance our existing customer relationships in ways that augur 
well for our future growth as we contemplate a worldwide market 
worth perhaps us2 trillion over the next 20 years and we kept 
up our constant drive for technical innovation and greater 
operational efﬁciency 
continuing progress 
iamparticularly pleased to report that in what was our centenary 
year we grew our total sales by ﬁve per cent to £59 billion and 
lifted our underlying proﬁts before taxation by 21 per cent to 
£345 millionthere was also a strong cash ﬂow performance 
we generated a cash inﬂow of £243 million which resulted in a 
reduction of our yearend net debt to £80 million from £323 million 
at the end of 2003 average net debt for the year at £560 million 
was at its lowest level since 1998 
across our four operating businesses we booked £87 billion 
of ﬁrm new orders and announced a further £24 billion that will 
go into the order book in due coursethis was a record intake for 
the group as was the yearend ﬁrm order book that closed at 
£189 billion our order book has now grown in each of the past 
ten years at a 12 per cent compound annual growth rate 
solid progress was made across all four of the group’s 
target markets 
– 	 in civil aerospace the trent 1000 engine was adopted by 
boeing for its new 787 dreamliner programme and was 
selected for the purchase of 50 aircraft by all nippon airways 
ensuring that rollsroyce will be the launch engine for 
this programme 
– 	 in defence aerospace the european governments 
participating in the euroﬁghter typhoon conﬁrmed 
tranche 2 of the programme resulting in an order worth 
more than £750 million for the group 
– 	 in the marine sector the mt30 derivative of the trent 
engine was selected for the lockheed martin version of the 
us navy’s littoral combat ship complementing our earlier 
success with the demonstrator programme for the ddx 
us destroyer and 
– 	 in the energy sector important contracts were won for 
the westeast china pipeline project and in the middle east 
for the dolphin energy limited gas pipeline which is the 
ﬁrst oil  gas application for the industrial version of the 
trent engine 
these and other successes during the year ensured that 
rollsroyce continued to enhance its strong market position in 
each of its four chosen sectors in civil aerospace we won 40 per 
cent of all new orders placed – our best ever performance in the 
oil  gas sector the success of the industrial trent enhanced our 
position in the market for aeroderived engines 
rollsroyce group plc annual report 2004 05  chief executive’ s review continued 
sir john rose 
every time that rollsroyce sells an engine we have signiﬁcant 
opportunities to secure future revenues for services that will add 
value for our customer and add predictability to our own future 
earningsthe group continued to build up this aspect of the 
business in 2004 revenue from services grew by 14 per cent to 
£32 billion which represented 55 per cent of total sales and 
brought the compound annual growth rate for this side of the 
business to 12 per cent for the past ﬁve years orders for future 
services accounted for £73 billion or 39 per cent of the yearend 
ﬁrm order book 
innovation 
innovative technology and engineering are at the core of our 
business and we pushed ahead with various important initiatives 
during the year rollsroyce last year prepared 250 applications 
for new patents a record total for the group in any one year 
many initiatives involved partnering with research and 
development centres overseas indeed we have now set up an 
international network of technologyoriented relationships and 
more than 50 per cent of the group’s total spending on technology 
programmes will be directed outside the uk  partners based in 
asia are increasingly important to ustowards the end of the year 
we signed a technology agreement with a number of research 
institutions in singapore covering a range of research activities 
further links of this kind are sure to follow 
as a global business we are in the fortunate position of 
being able to recruit the most able students in all the countries in 
which we operate and conduct research however my colleagues 
and i cannot fail to be concerned over the contrast evident in the 
uk where fewer students study the sciences each year if we are 
going to sustain our leadership in an intensely competitive 
marketplace then we will need to ensure a reliable supply of 
talented young engineers and scientists 
the remedy will have to include stimulating more interest 
in science at the classroom level which is why in july we launched 
the rollsroyce science prize it is a £1 million award programme 
that has been designed to act over a number of years as an 
incentive to encourage excellence in science teaching we hope 
it will also inspire more young people to look at the possibility of 
a career in our industry 
a highlyskilled workforce of course demands a best
practices workplace investing in people and technology means 
investing also in our infrastructure and manufacturing capabilities 
one of the most visible signs of this is our factory renewal 
programme last october we opened our new compression 
systems facility at inchinnan in scotlandit is one of a number of 
facilities that will be developed and opened over the next few 
years reﬂecting a total investment of more than £200 million 
as well as rationalising our manufacturing facilities 
we remain focused on improving our manufacturing processes 
simplifying our supply chain and reducing the leadtime involved 
in component deliverythis process delivered a ﬁve per cent 
reduction in our unit costs in 2004 and we are targeting continuing 
cost reduction in 2005 
prospects 
the four sectors of the powersystems market on which rollsroyce 
is focused – civil aerospace defence aerospace marine and energy 
– all enjoy strong demand trends stretching well into the future 
rollsroyce is well placed to beneﬁt from this demand 
having invested heavily in new productstaking advantage of the 
common technological base underpinning all four sectors the group 
has directed its investment into the development of a robust 
portfolio of products that can be adapted and applied to respond 
to new market opportunitiesthus the investment in the trent 
family of engines provided the technical foundation for us to bid 
successfully last year on the new boeing 787 and has also formed 
the basis for new products in other sectors such as the mt30 in the 
marine sector and the industrial trent in the energy sector 
the potential for service revenues is similarly encouraging 
the growing number of rollsroyce engines in service and their long 
service lives promise to ensure attractive returns over many years 
this aspect of the group’s business is evolving rapidly with a 
signiﬁcant level of investment being made in support capabilities 
such as engine repair and overhaul facilities engine leasing and 
predictive data managementwe expect to see a steady rise in the 
number of longterm service agreements with our major customers 
across its four sectors rollsroyce has now established 
a sound position within programmes that will shape the power
systems market for many years to come 
–	 i n civil aerospace conditions remain difﬁcult for some 
airlines but rollsroyce has a broad spread of products 
and customersthe trent engine family has secured a 
50 per cent share of the engine market serving widebodied 
aircrafttrent engines will power the launch of the 
boeing 787 and airbus a380 aircraftthe trent 900 was 
certiﬁed on time paving the way for the ﬁrst ﬂight of the 
a380 in 2005 we also offer a competitive range of engines 
for the regional airlines and corporate aircraft sectors 
–	 i n defence aerospace our position on a broad range of 
mature and new programmes enables us to mitigate the 
impact of volatility on individual programmes and provides 
a stable outlook 
–	i	n the marine sector our naval business is well positioned 
on a number of important new programmes and orders 
in the offshore market recovered strongly in the second 
half of 2004 and 
–	i	n the energy sector our oil  gas business has a strong 
order book and the industrial trent is well placed to secure 
a growing share of the power generation market earlier 
this year we established a joint venture with a consortium 
of companies in asia as a further step in the process of 
bringing to market our solidoxide fuel cell technology 
rollsroyce group plc annual report 2004 06  the group is exposed to exchange rate movements on foreign 
currencies particularly the us dollar which continued to weaken 
relative to sterling throughout 2004 we have however continued 
to pursue our strategy of hedging future net dollar revenues and 
at the end of 2004 had approximately us9 billion of forward cover 
our strong order book the longterm services revenue 
stream and our focus on operational performance underpin the 
group’s expectations of continued growth in proﬁts and reduction 
of average net debt in 2005 we continue to target a ten per cent 
return on sales over the medium term across all our businesses 
as the business model develops and our operational efﬁciency 
continues to improve 
a memorable year 
we celebrated our centenary in 2004 with a huge variety of events 
from highland games in derbyshire to openair concerts and 
air shows including an aerobatics display by the red arrows 
employees enjoyed the opportunity to entertain their families in 
5
the workplace at all of our main sites around the world we also 
sponsored many special events – notably a series of concerts in 
singapore hong kong and beijing by the london symphony 
orchestra which like us was celebrating its 100th year 
so it was a year in which the unique character of 
rollsroyce was more than usually apparent to all of those who 
work in the group a fact we were proud to acknowledge by 
presenting every employee with a copy of a beautifully produced 
book tracing the history of the company’s ﬁrst 100 years 
as we set out on the next 100 i would like to thank all our 
employees for the huge contribution that they made in 2004it is	 
only through their dedication and cooperation that the group 
can look forward to retaining its competitive vigour and delivering 
value to customers and shareholders 
sir john rose 
chief executive 
our strategy for future 
success consists of 
ﬁve key elements 
–		a ddress four global markets 
–		i nvest in technology  capability 
and infrastructure 
–		d evelop a competitive portfolio 
of products and services 
–		 grow mark et share and installed 
product base 
–		ca pture substantial aftermarket 
opportunities 
rollsroyce group plc annual report 2004 07  rollsroyce group plc annual report 2004 08 
our strategy 
15 0  09 rollsroyce group plc annual report 2004
i 
i  
i ldleading 
andy ang 
mari 
address four global markets 
we are a leading powersystems company 
in civil and defence aerospacemar ne and energy 
marketswe employ 50 nationalities in 50 countries 
85 per cent of our sales are achieved outside the 
uk and 40 per cent of our employees are based 
outside the ukwe manufacture in 20 countries 
and serve customers in 150 countries 
left to r ght 
barnoldswick uk 
alex gallacher 
alex is a diffusion bond facility 
associate part of the team 
manufactur ng wor 
widechord fan blades 
singapore 
as general manager – 
aftermarket working for our 
ne business in singapore 
andy is responsible for spares 
maintenance overhauls and 
equipment upgrades 
toulouse  f rance 
cindy solar 
administrative assistant 
cindy ensures the smooth 
running of the rollsroyce 
ofﬁce in toulouse 
indianapolis usa 
huerta t ribble 
huerta is an engineer who 
supervises in the component 
test and air facilities  10 
continued 
ld 
 
bladed discs 
the atrium of the 
the group continues 
to i 
rollsroyce group plc annual report 2004 
our strategy 
in vest in technology  capability 
and infrastructure 
over the last ﬁve years we have invested more 
than £3 billion in research and development 
creating advanced technologies that are employed 
across our product rangewe invest around 
£30 million each year in training and developing 
our peoplewe continue to invest in new and 
more efﬁcient production facilities as well as 
repair and overhaul facilities around the wor 
as our customer base grows 
right new technology blisks 
opposite 
new manufacturing facility 
at inchinnan scotland 
left 
nvest in development 
opportunities and training 
programmes for employees  11 
3bn 
rollsroyce group plc annual report 2004  12 
continued 
50 
rollsroyce group plc annual report 2004 
our strategy  13 
the boeing 787 is a family 
j 
l 
will propel a 700passenger 
duri 
joint stri i 
tm 
airbus a380 
l 
ly 
500 and 600 passengers and 
– 
l 
– l 
– l i 
– 
i  
launched during 2004 pipeline in the middle east 
rollsroyce group plc annual report 2004 
boeing 787 dreamliner 
of midsized aircraft being 
developed by boeingthese 
aircraft will be powered by the 
trent 1000 engine which was 
water ets 
the group’s kamewa waterjets 
are employed in both naval and 
commercial marine applications 
among these are the wor d’s 
most powerful waterjets 
kamewa vlw235s which 
japanese technosuperliner 
ferry at 38 knotsthe ferry is 
due to enter service in 2005 
industrial t rent 
ng 2004 rollsroyce won 
a major contract to supply six 
mechanical drive industrial trent 
compression packages for the 
dolphin energy limited gas 
joint strike fighter 
rollsroyce and customer 
representatives discuss the 
ke f ghter rollsroyce 
participates in the f136 propulsion 
system for the aircraft and is 
responsible for the vertical lift 
liftfan system 
airbus unveiled the wor d’s 
largest passenger jet in ear 
2005 the airbus a380 
the aircraft will carry between 
is powered by rollsroyce 
trent 900 engines 
de v e lop a c o mpetitiv e port f o lio 
of pr oducts and servic es 
our strong product portfolio has ensured that we 
are involved in many of the major future projects in 
the markets we servethese key projects will shape 
the power systems market for the next 50 years 
trent to power new airbus and boeing airlinersconﬁrming 
it as the wor d’ s leading large aeroengine family 
wor d’ s most powerful aeroderived gas turbine 
the industrial trent 
wor d’ s most powerful mar ne gas turbine the mt30 
global leadership in military transport power continues 
with tp400 development 
left to r ght  14 
continued 
our mari 
rollsroyce group plc annual report 2004 
our strategy 
grow market share and 
installed product base 
we have 54000 gas turbines in servicedelivering 
power for landsea and air applicationswe power 
42 of the top 50 airlines and 160 defence customers 
ne products are used by 70 navies and 
2000 commercial customersour energy systems 
are used in 120 countries  15 
l  china is a major new 
 
i 
 
below right 
i 
rollsroyce group plc annual report 2004 
far eft 
customer for the trent engine 
below left rollsroyce is playing 
a key role in the joint str ke 
fighter programme 
below the type 45 destroyer 
for the royal navy will be 
wr21 powered 
part of the 3900km 
westeast china p peline project 
which uses rollsroyce rb211 
gas turbines 
54  000  16 
continued 
 
the home page of 
ight i 
the operations room 
i 
rollsroyce group plc annual report 2004 
our strategy 
left ej200 engine service 
support for the raf  
below 
the group’s aeromanager 
web portal 
above r work ng together – 
arollsroyce marine representative 
with a customer in korea 
right 
in derby provides airline 
customers with a 24hour 
engine monitor ng service  17 
50

50 
of the business 
rollsroyce group plc annual report 2004 
capture substantial 
aftermarket opportunities 
add value for our customers through the 
provision of productrelated services 
our large installed base of engines provides a 
substantial opportunity to add value for our 
customersmore than half of our revenue now 
comes from services and this part 
has been growing by 12 per cent per annum 
compound over the last ﬁve years  review of operations
 
our success in the modern widebody sectorwith a 50 per cent 
market share has been further reinforced by our launch position on 
the boeing 787this is important as the aircraft addresses a growing 
sector of the civil market which we anticipate will require almost 
us100 billion of new engines in the next 20 years 
we secured signiﬁcant new risk and revenue sharing 
partnerships on the trent 1000 programme in japan mhi joined 
khi our longterm partner on the trent programme between 
them taking a 15 per cent share in the trent 1000 programme 
our strategy to offer innovative longterm services through 
totalcare and corporatecare has continued to be successful 
with £1 billion of contracts signed during the year taking coverage 
to 38 per cent of the ﬂeetthe 500th customer of aeromanager 
the ebusiness portal which provides users access to a broad 
range of aeroengine aftermarket services was signed up recently 
in addition we enhanced our service support infrastructure with 
the derby 247 operations room which went live in march 2004 
this provides an integrated decision support system coordinating 
2004 2003 2002 2001 2000 
3040 2694 2739 3443 3150 
170 131 150 347 332
net assets £m 1142 1099 1219 1124 1116
141 134 122 100 94 
824 746 856 1362 1091
10970 10450 9910 9212 8322 
20100 19800 21100 23900 24600 
installed jet engine base 
civil aerospace  
turnover £m  
underlying pbit £m  	
order book – ﬁrm £bn  
engine deliveries  
employees  
civil aerospace
mike t errett 
president – civil aerospace 
civil aerospace civil aerospace 
data from aircraft engine and overhaul shops with logistics support 
contribution 
4 
1 
sales 2004 
1 
to group 
1 original 	
and engineering knowledge 
turnover 2004 
3 	
equipment – services sales increased by 25 per cent to £18 billion 
airline 
1 civil aerospace 
2 original 
£3040m representing 59 per cent of civil aerospace sales 

2 defence 
equipment – 
in january 2005 boeing announced the closure of its 

aerospace 
corporate 
2 
3 marine 
3 services 717 line an aircraft powered exclusively by our br715 engine 
4 energy 
2 3 
the programme had been subject to speculation for some time 
and we had already taken a prudent approach to our modest 
ﬁnancial exposure in our 2004 results 
our broad product range provides power for more than 
30 different civil aircraft types for international airlines regional 
airlines and corporate operators 
we strengthened our presence in the civil aeroengine 
industry during 2004 through a combination of strong positions 
on the new aircraft under development airbus a380 and 
boeing 7e7 now renamed the 787 and a growing market share 
including a marketleading position on modern widebodied 
aircraft overall we achieved a record market share of 40 per cent 
for orders announced during the year 
engine deliveries were higher than originally anticipated 
at 824 reﬂecting a recovery from the ‘trough’ year in 2003 when we 
delivered 746 engines we expect continued growth in engine 
£3 040m 
deliveries in 2005 
the corporate jet market showed signs of recovery in 2004 
we expect this to continue in 2005 whereas the regional market 
civil aerospace sales 2004
for 50 seat aircraft is expected to remain depressed 
the rollsroyce civil ﬂeet ﬂying hours increased by 
15 per cent compared to 2003 as a result of a recovery in world 
trafﬁc growth and increased ﬂeet sizethe trent 500 engine 
passed the one million ﬂying hours mark in december 
£1 7 0 m 
civil aerospace underlying proﬁt before interest 2004 
rollsroyce group plc annual report 2004 18  sales 2004 
1 
equipment 
2 l 
3 
£1374m
1 
2 
3 
4 
1 
2 
3 
4 
1 
2 
3 
2004 2003 2002 2001 2000 
1374 1398 1376 1400 1403 
155 147 183 175 154 
net assets £m 47 69 25 179 261 
30 24 21 26 26 
548 510 505 472 555 
5100 4900 5100 6700 7200 
defence aerospace 
original 
deve opment 
services 
defence aerospace  
contribution 
to group 
turnover 2004 
civil aerospace 
defence 
aerospace 
marine 
energy 
defence aerospace 
colin green 
president – defence aerospace 
defence aerospace  
turnover £m  
underlying pbit £m  
order book – ﬁrm £bn  
engine deliveries  
employees  
our defence business is broadly based with a strong portfolio 
of products and services covering the key defence aerospace 
market sectors from combat and trainer to transport tactical 
aircraft and helicopters 
in 2004 we continued to expand our services offerings 
and customer base while increasing the ﬂeet of installed engines 
in the combat market the order for tranche 2 of euroﬁghter 
typhoon aircraft will mean new engine sales worth more than 
£750 million to rollsroycethe contract covers 519 engines 
for which rollsroyce will produce the combustion system 
high pressure turbine intermediate casing and other components 
the group will also assemble test and deliver 195 engines for the 
raf work on tranche 2 engines will start in 2005 and rollsroyce 
plans to produce approximately 40 engines a year over the next 
ﬁve years to fulﬁl the raf order 
2004 was a momentous year for the f35 joint strike 
fighter jsf f136 engine in which rollsroyce is a 40 per cent 
partnerthe engine successfully performed its ﬁrst engine test 
soon afterwards we were awarded a us45 million followon 
contract to complete the concept demonstration work on the 
f136 which will compete in a potential international market 
estimated at approximately 5000 aircraft 
the rollsroyce liftsystem® which provides vertical lift for the f35 
continued to beat programme requirements at the beginning of 
the year the unique liftfan
tm 
test cell was dedicated in indianapolis 
testing of the whole propulsion system including the liftsystem® 
commenced ahead of schedule and the liftsystem® performed 
well over 1000 hours of rig and system testing has been 
undertaken since the beginning of the system development 
and demonstration phase of the programme 
these great strides in the euroﬁghter and jsf programmes 
have helped to maintain our position at the forefront of two of the 
world’s major combat aircraft programmes 
a further ten pegasus engines were ordered by the 
 
spanish and italian navies to support their harrier av8b aircraft
 
the transport market in which rollsroyce is the global 
leader was another area of strength in 2004 particularly in the 
united statest56 turboprop business remained strong in this 
engine’s 51st year of production and the improved series iv engine 
secured the advanced hawkeye development programme for 
the next generation of that aircraftthe ae 1107cliberty engine 
continued to perform well in operational assessment testing of the 
v22 osprey in severe environments and multiple mission scenarios 
in the summer the us air force took possession of its ﬁrst ae 2100­
powered c130j aircraft in europe the preliminary design review of 
the tp400d6 engine for the airbus a400m transport aircraft was 
successfully concluded followed by onschedule initial testing of 
the ﬁrst engine hardware 
in the helicopter market the rtm322 continued to grow in 
orders and powerthe selection by oman of the latest increased 
power version to power 20 helicopters increased the number of 
customers who have selected the rtm322 for the nh90 to nine 
out of tenthe ﬁrst production nh90 made its maiden ﬂight in 
may powered by the rtm322 civil certiﬁcation of the engine 
enabling it to be used in nonmilitary helicopters was also achieved 
in the summer 
£1  3 7 4 m 
defence aerospace sales 2004 
£1 5 5 m 
defence aerospace underlying proﬁt before interest 2004 
rollsroyce group plc annual report 2004 19  review of operations continued 
defence aerospace continued 
the federal aviation administration certiﬁed the t800 engine 
for the super lynx 300 helicopter the ﬁrst of which were formally 
handed over for thai and omani customers first deliveries of the 
mtr390powered tiger took place in the second half of the year 
the company also received a large order for model 250 engines 
when the us border patrol selected the bell 430 helicopter 
the model 250 engine also powered the md500e to a new 
roundtheworld speed record 
in the tactical aircraft market four br710 engines powered 
the nimrod mra4 reconnaissance aircraft for its maiden ﬂight 
and ﬁve rollsroyce engines – four ae 2100s and one t800 – 
powered the japanese us1akai ﬂying boat on its ﬁrst ﬂight 
the ae 3007 continues to demonstrate superb performance 
in global hawk which has now exceeded 4000 ﬂying hours 
the ae 3007 also powers the erj145 which has been selected 
for the aerial common sensor programme 
the provision of services contributed 56 per cent of the 
group’s defence sales and we continued to service existing contracts 
successfully and win new ones over 1100 military engines and 
1800 military engine modules are now covered by mission ready 
management solutions longterm service contracts 
after achieving record engine availability during the ﬁrst 
year of the adour support contract for the t45 us navy trainer 
aircraft the following year’s option was exercised early a similar 
performancebased logistics programme is under way to support 
the ae 2100 powering the us marine corps c130j ﬂeet providing 
superior availability while controlling costs 
rollsroyce is also supporting a guaranteed level of ej200 
availability to power the uk royal air force’s initial typhoon training 
operations with more than 1100 hours ﬂown the programme is 
exceeding contractual requirements in addition we have extended 
existing availabilitybased contracts for modules for the rb199s 
in tornado aircraft as well as winning new business to support 
pegasus modules in the harrier 
2004 has been a notable year across all of our market 
sectors and our balanced portfolio enables us to look forward 
to the future with wellfounded conﬁdence 
£963m 
1 
2 
3 
4 
1 
2 
3 
4 
1 
2 
3 
4 
sales 2004 
1 
equipment 
2 
3 l 
4 l 
equipment 
marine 
i ine 
marine 2004 2003 2002 2001 2000 
963 1003 984 827 751 
67 78 82 73 67 
net assets £m 567 577 550 513 582 
14 12 13 13 08 
7100 7300 6500 6500 6500 
i 
marine contribution 
to group 
turnover 2004 
civil aerospace 
defence 
aerospace 
marine 
energy 
marine 
commercial 
original 
commercial 
services 
nava 
services 
nava 
original 
dr saul lanyado 
pres dent – mar 
turnover £m  
underlying pbit £m  
order book – ﬁrm £bn  
employees  
 restated following the transfer of the diesel business from energy to mar ne 
it has been a year of steady progress for the marine business with 
growth in naval markets and a recovering commercial sector 
in the naval market sector our mt30 gas turbine 
programme continues to gather momentum lockheed martin 
selected the engine for the ﬁrst prototype in the us navy’s littoral 
combat ship lcs programmethis new coastal defence vessel 
will also be powered by rollsroyce kamewa waterjets 
the mt30 which is the world’s most powerful marine gas 
turbine achieved further milestones during the year by earning 
full naval and commercial certiﬁcationthe engine completed 
both the endurance test running for american bureau of shipping 
certiﬁcation and gained dnv det norske veritas design approval 
the mt30 programme reﬂects a core rollsroyce 
philosophy which is to invest in technology once and then 
reap the rewards across our different market sectorsthe engine 
has 80 per cent commonality with the trent 800 aero engine 
developed for the boeing 777 
the ﬁrst mt30 to be delivered was handed over to 
northrop grumman in early 2004 as part of the landbased 
demonstrator for the us navy’s ddx destroyer programme 
rollsroyce is therefore well positioned on both ddx and 
lcs programmes when they move into full production 
rollsroyce group plc annual report 2004 20  the two largest warships ever to be built for the royal navy will 
be powered by the mt30the engine has been nominated for the 
two aircraft carriers cvf and interest has also been expressed for 
the next generation of french aircraft carrier – the p a2 
our submarine business accounted for 54 per cent of our 
naval sales our manufacture and support of nuclear propulsion 
systems for the uk’s submarine ﬂeet stretches back to the 1960s 
and our expertise and technology is acknowledged as being 
worldclass 
this success moved onto a new level during the year when 
rollsroyce was awarded the nato submarine rescue system 
contract by the uk ministry of defence acting on behalf of the 
uk france and norwaythe contract recognises our ability to act 
as project manager for the design build and support of the new 
system over a tenyear periodthe system will also be equipped 
with the revolutionary rollsroyce sodiumnickel chloride zebra 
batteries which have almost twice the energy density in a reduced 
volume compared to traditional leadacid installations 
during 2004 our commercial business supplied the largest 
waterjets ever made for the japanese technosuperliner ferry 
which will begin operations this year on 16hour voyages between 
tokyo and ogasawaragunsothe waterjets will help propel the 
140m long aluminium ferries at a service speed of 38 knots 
the offshore market recovered strongly in the second half of 
2004 when we announced ﬁrm orders worth £166 million to supply 
design and equipment packages for service and support vessels in 
the offshore oil  gas industry demonstrating our ability to supply 
complete systems we are designing and will help equip 26 new 
support vessels based on our utdesign nearly 500 of these 
ships are in service or are on order since their introduction in the 
mid1970sthey showcase our ability to integrate design control 
automation and propulsion equipment into a single package 
we are enhancing our sales opportunities by taking offshore 
technology into new marketswe have diversiﬁed into the coastguard 
sector by supplying coastal protection vessel design and equipment 
packages to france and norway and pollution control variants to 
india all based on the utdesign 
in what we believe may herald a new growth market for us 
abg shipyard the largest private yard in india selected rollsroyce 
to design and provide equipment for three indian coastguard ships 
which will prepare them for potential environmental crises such 
as oil spillsthe 3300 tonne ships will be equipped with a range 
of rollsroyce propulsion steering and motion control equipment 
with the ﬁrst due for delivery in 2006 
another new technology we launched in 2004 was the 
azipull thruster which is being ﬁtted to inshore tankers and some 
utdesignsthe new thrusters allow higher speeds and more 
stable running than traditional propulsors and can create extra 
space on ships 
revenues from aftermarket business or service streams have 
continued to grow in 2004 the marine business made around 
41 per cent of its sales from servicesthis market is growing as more 
navies acquire gas turbine technology during the year we provided 
refurbished gas turbines for two exroyal navy type 22 frigates 
entering service with the romanian navy orders were also signed 
with the chilean navy to service gas turbines for the next 20 years 
on ﬁve new ships in its ﬂeet a key element of chile’s transformation 
of its ﬂeet to gas turbine technology in commercial markets 
where the service business has not been as large in relation to 
manufacturing a signiﬁcant growth opportunity exists and we 
are looking at ways of developing this further 
much of the world’s shipbuilding now takes place in 
asia and our structures reﬂect this regional shiftwe gained orders 
from the republic of korea navy for nine ag9140rf gas turbine 
generator sets which will be supplied to the republic’s kdx iii 
destroyer programme in partnership with samsungwe are also 
providing propellers and associated equipment and services for 
the same ships in conjunction with doosan heavy industries 
such agreements are part of the rollsroyce strategy for growing 
its marine business in north east asia 
in 2005 we are opening a factory in shanghai to manufacture 
marine equipment we have a similar operation in korea our goal 
is to be closer to our customers and position the business to reﬂect 
the emerging global shipbuilding markets while retaining core 
technical skills in the uk north america and the nordic countries 
£963 m 
marine sales 2004 
£6 7 m 
marine underlying proﬁt before interest 2004 
rollsroyce group plc annual report 2004 21  review of operations continued 
sales 2004 
1 
2 
generation 
3 
£489m 
1 
2 
3 
4 
1 
2 
3 
4 
1 
2 
3 
i 
2004 2003 2002 2001 2000 
489 508 639 608 476 
14 23 41 64 48 
net assets £m 387 346 348 381 449 
04 04 06 04 03 
47 54 68 72 79 
3000 3100 4500 4900 5400 
i 
energy 
oil  gas 
power 
services 
energy contribution 
to group 
turnover 2004 
civil aerospace 
defence 
aerospace 
marine 
energy 
energy 
tom curley 
pres dent – energy 
energy  
turnover £m  
underlying pbit £m  
order book – ﬁrm £bn  
engine deliveries  
employees  
 restated following the transfer of the diesel business from energy to mar ne 
the gas turbine is at the heart of our business and we stay focused 
on this core competency in all that we do from new product 
development to sales and marketing to manufacturing and 
assembly to aftermarket services we continue to look for every 
opportunity to leverage rollsroyce technology in energy markets 
we strive to be world class in the execution of our 
business by differentiating ourselves from our competition through 
consistent dependable reliable and responsive customer service 
from preorder to postinstallation 
in 2004 we continued to develop a solid foundation for 
sustained proﬁtability and growth 
in oil  gas the rb211 was the clear market leader for aeroderived 
industrial gas turbines in its size range we also launched the 
industrial trent gas turbine into the oil  gas market with orders 
for six industrial trent gas compression packages for the dolphin 
energy limited gas pipeline in the middle eastthe industrial trent 
is the ﬁrst aeroderived gas turbine in its class to be selected for a 
major gas compression application in addition we commenced 
shipment and achieved successful startup of the ﬁrst rb211driven 
compressor packages for the westeast china pipeline project 
and we remain on schedule for delivery of all 20 packages ordered 
for this important project 
in customer servicewe continued to respond to the 
growing customer trend for longterm service agreements 
2004 was a record year with over us160 million booked in 
new contracts we received the 2004 ‘great operator’ award from 
bp  having signiﬁcantly improved the product performance on its 
bruce platform in the north sea 
as we predicted the worldwide power generation market 
remained sluggish in 2004we continued to use this period to 
restructure our power generation business and enhance new 
product development to take advantage of the expected market 
recovery both dry low emissions dle and wet low emissions 
wle versions of the industrial trent are now available for sale 
and are accumulating thousands of operating hours each month 
gas turbines are the technology of choice in this market and the 
industrial trent is the most powerful and efﬁcient aeroderived 
gas turbine in its class 
we completed a new costcompetitive trent package that 
provides our customers with a worldclass design for installation 
and maintainabilitythis new package is applicable to both power 
generation and oil  gas units and is being embodied in the trent 
units provided for the dolphin energy limited gas pipeline 
our expansion of the geographic footprint of our installed 
base in the oil  gas sector continued with signiﬁcant orders from 
customers in azerbaijan kazakhstan west africa and brazil 
we received orders for eight rb211 packages for the third 
and ﬁnal phase of the bp azeri project offshore azerbaijan in the 
caspian seathis has taken our total orders from bp over the last 
three years for this project to 28 rb211 packages our goal of 
entering the offshore kazakhstan market also in the caspian region 
was realised with orders for four rb211 generating sets that will be 
installed on a barge to provide power to adjacent offshore facilities 
five additional rb211 packages were ordered for offshore west 
africa making nearly 20 packages ordered for offshore service there 
in recent years brazil remains a key market area and we received 
orders for seven additional offshore rb211 packages in 2004 from 
petrobras who have now ordered a total of 19 units for their 
offshore service operations 
rollsroyce group plc annual report 2004 22  as we expand into new market regions of the world we also 
recognise our responsibility to establish the critical infrastructures 
required to support our customer installationswe are developing 
facilities to support operations in the caspian region brazil and 
china and are considering further opportunities in west africa 
and other regions of the world 
2004 also saw signiﬁcant change in our manufacturing
 
facilities as we transformed our operations into an organisation 
 
that can more responsively meet the needs of our customers
 
and ultimately enhance our proﬁtability
 
in 2004 we increased investment in our fuel cell 
technology earlier this year we established a joint venture with a 
consortium of companies in asia as a further step in the process of 
bringing to market our solidoxide fuel cell technologythe asian 
group has bought a 25 per cent share in rollsroyce fuel cell 
systems and will contribute both ﬁnancial and technical resources 
to this development programme 
for 2005 our priorities remain focused on increasing our 
return on sales and continuing to position the business for healthy 
growth we will achieve these goals by maintaining our leadership 
position in oil  gas building a strong complementary global 
power generation business particularly for the industrial trent 
engine and further improving operational excellence above all 
we will seek to differentiate ourselves from our competition with 
a focus on customer service that continues to enhance customer 
value and provide our business with signiﬁcant returns 
£48 9m
 
energy sales 2004 
£1 4 m 
energy underlying proﬁt before interest 2004 
£m 
2000 
2001 
2002 
2003 
2004 
604 
636 
590 
619 
601 
£m 
2000 
2001 
2002 
2003 
2004 
371 
358 
297 
281 
282 
– 
– 
– 
i i 
– 
– 
– 
– 
marine applications 
gross research and development net research and development 
focused investment 
in technology 
dr michael howse 
director – engineering 
and t echnology 
highlights of the year 
first ﬂight and ontime certiﬁcation of the trent 900 with advanced swept 
fan blade technology for the airbus a380 aircraft 
launch and completion of concept design of the trent 1000 with its unique 
power offtake system for the boeing 787 dreamliner 
first run of the f136 demonstrator engine with its unique friction bonded 
fan blades and lamilloy® combustor for the joint str ke f ghter 
qualiﬁcation of the mechanical drive version of the industrial trent 60 with 
its advanced low emission combustion system for the dolphin energy 
limited gas pipeline 
certiﬁcation of the mt30 adapted from the trent 800 civil engine for 
first run of our new solidoxide fuel cell subsystem at temperature and 
pressure demonstrating high levels of efﬁciency 
opening of two new university technology centres utcs in europe 
and a multipurpose advanced technology centre in singapore 
research and development is key to the success of the group 
last year we invested a total of £601 million in research and 
development and prepared 250 patent applications our aim is 
to maximise the beneﬁt of this investment by creating technology 
and methods once but using them in many parts of our business 
we address the whole product life cycle from applied 
research in new materials manufacturing methods analytical tools 
and design concepts to the development of new products and the 
management of their operational lives through the development 
of our service capabilities 
we have continued to expand our external research 
networkthe opening of the new university technology centres 
utcs at genoa and the university of manchester in the exciting 
new technology ﬁelds of fuel cells and electrical systems in extreme 
environments respectively were examples of thisthe technology 
demonstration programme for our special solidoxide fuel cell 
concept continued to make good progressthe ﬁrst tests at 
temperature and pressure of a cell subsystem fully conﬁrmed the 
anticipated high efﬁciency levels that will be unique to our design 
an advanced technology centre has been created in 
singapore to investigate a number of research ﬁelds including 
advanced low cost manufacturing methods new materials 
rollsroyce group plc annual report 2004 23  review of operations continued 
focused investment in technology continued 
particularly related to fuel cells and high performance computing 
particularly related to advanced computational ﬂuid dynamics which 
is applied to aerospace energy and marine product programmes 
good progress has been made on the jsf propulsion system 
programmesthe ﬁrst full engine test of the integrated f135 liftsystem® 
took place on schedule the unique liftfan
tm
which provides vertical 
lift for the f35 jsf has widechord fan blade technology derived 
from our large civil engine programme advanced analysis developed 
by our university technology centre utc at imperial college was 
used to ensure the blades could operate efﬁciently and reliably in 
the harsh aerodynamic environment demanded by jsf  the alternate 
engine for the jsf is the joint gerollsroyce f136 and the demonstrator 
had a successful ﬁrst run 
the trent family has continued to progress with the ﬁrst 
ﬂight and ontime engine certiﬁcation of the trent 900 for the airbus 
a380 aircraft and the launch of the trent 1000 for the boeing 787 
dreamlinerwe believe that cost effective high performance engines 
are produced best by building on the proven design of the trent 
family and inserting new technology when appropriate to this reliable 
base both engines have the advanced technology swept fan blades 
developed for minimal environmental noise impact using new 
analytical techniques from our noise utc at southampton university 
the trent 1000 will feature a unique power offtake system 
for improved fuel efﬁciency which is being designed with support 
from the transmissions utc at nottingham universitythe trent 900 
and trent 1000 will feature advanced condition monitoring systems 
and improved materials and designs to further improve the life 
and reliability of the trent family and to give cost effective service 
to our customers 
our strategy of invent once and use many times is typiﬁed 
by the adaptation of the trent 800 for the marine and energy markets 
the marine variant the mt30 has achieved certiﬁcation and 
installation design work is well advanced for the us navy ddx 
destroyer and littoral combat ship demonstrator programmes 
the energy variant the industrial trent 60 has achieved qualiﬁcation 
for mechanical drive applications and will be delivered in 2005 for 
the dolphin energy limited gas pipeline each variant requires a 
combustion system speciﬁc to that market but we use common 
tools and materials to design combustors for each application 
the industrial trent 60 utilises the advanced low emissions design 
essential for the energy sector and incorporates a low vibration
damping concept which was created by the combustion utc at 
cambridge universitythis same concept is being applied to the 
development of a new environmentally friendly low emission 
combustor for future engines for civil aircraft 
we will continue to pursue advances in technology 
processes products and services through focused investment in 
research and development using the exceptional and extensive skills 
within our own workforce and by collaboration with universities 
partners suppliers and customers 
2000 
2001 
2002 
2003 
2004 
43700 
42200 
37300 
35200 
35400 
£000 
2000 
2001 
2002 
2003 
2004 
126 
146 
148 
156 
169 
john chefﬁns 
– 
– 
– 
– 
– 
– i 
employees group turnover – per employee 
operational excellence 
chief operating ofﬁcer 
highlights of the year 
gross operating margins improved from 174 per cent to 19 per cent 
product cost reduction continued successfully 
product quality improved signiﬁcantly 
agreements reached on modern working practices at all uk sites 
it costs signiﬁcantly lowered whilst service levels improved 
work ng capital utilisation improved 
we entered the year with plans that anticipated 2004 being 
the ‘trough year’ in this civil aerospace cycle by the end of the ﬁrst 
quarter it was apparent that market conditions had improved and 
we could expect growth to resume by the end of 2004 production 
load in aggregate was running at some 20 per cent above the rate 
at the end of 2003 in consequence restructuring expenses were 
lower than planned and there was substantial productivity 
improvement which allowed the load increase to be delivered 
without increasing the workforce in operations 
local loadcapacity imbalances produced a degree of 
disruption to deliveries but our workforce and our supply chain 
again demonstrated considerable commitment in seeking to 
overcome this and i take this opportunity to compliment them 
for their efforts 
in 2004 we continued to make progress in the restructuring 
of our supply chain we further reduced our supplier base by 
seven per cent to 711 after adding one new supplier our sourcing 
in emerging low cost markets increased from four per cent to 
six per cent of purchases 
our drive to lower operating costs persisted in 2004 against 
a background of rising volume both our factories and our supply 
chain were able to deliver the planned ﬁve per cent yearonyear 
product cost reduction increased overtime costs and some 
primary materials cost increases were more than offset by higher 
productivity better quality and improved ﬁxed cost absorption 
rollsroyce group plc annual report 2004 24  we reached agreement on the implementation of modern working 
practices with our uk workforces at our sites in derby hucknall 
barnoldswick and bristolthis formed an essential part of the business 
cases for new factories in these locations construction work has 
commenced in all locations except bristol where planning 
permission is pending 
discussions on modern working practices have opened 
in a number of other rollsroyce locations around the world 
agreement has been reached with all of our workforces for 
the implementation of a global works council which will be put in 
place in early 2006 to cover both represented and unrepresented 
rollsroyce employees globally 
we launched a culture change programme under the 
banner of ‘process excellence’ aimed at developing a culture of 
systematic continuous improvement targeting worldclass quality 
performance for both operational and transactional processes 
in 2004 we achieved a signiﬁcant improvement in product related 
quality with partspermillion ppm defect rates halving to close 
at approximately 1000 ppm for our whole supply chain 
in conjunction with our it supply chain and our principal 
outsourcing partner eds we achieved substantial operating cost 
reduction for our it estatethis resulted from a multiyear initiative 
driving standardisation productivity and improved service levels 
our lean manufacturing initiatives coupled with a speciﬁc 
focus on noncash working capital resulted in further improvement 
to working capital utilisation from 68 per cent to 64 per cent of sales 
in 2005 our priorities will be to persist with our lean 
manufacturing and process excellence initiatives continue to drive 
product cost reduction build our new uk factory infrastructure 
and manage the anticipated continuing growth in load 
services 
miles cowdry 
director – services 
the aftermarket created by the 54000 engines we have in service 
around the world offers a signiﬁcant opportunity to rollsroyce 
and represents about 55 per cent of our total business 
increasingly we are addressing this opportunity by 
taking responsibility for the management of the maintenance 
and associated logistics for our engines and systems monitoring 
the equipment in service to deliver the system availability our 
customers require with predictable costs our strategy is to align 
our interests with those of our customersthis gives us an incentive 
to improve the reliability and extend the service intervals of our 
products increasing our customers’ revenue earning potential 
and the operational effectiveness 
our approach continues to ﬁnd acceptance in the marketplace 
in each of the sectors in which we operatetotalcare and 
corporatecare business worth £1 billion was contracted in 2004 
building on the success of previous years a total of 4300 civil 
engines are now under management 
we have also seen notable contract awards in other sectors 
of our businessthe royal air force has agreed a £65 million contract 
extension for the spey engine which powers the nimrod maritime 
reconnaissance aircraftthis is a followon from the successful initial 
contract in which all the key targets were met similarly the us 
department of defense awarded rollsroyce a us60 million 
power by the hour® contract for the f405rr401 adour engines 
that power the us navy’s t45 training aircraftthis logistic support 
contract was developed in line with civil aerospace agreements 
demonstrating the value to be gained from applying commercial 
best practice it is an excellent example of how rollsroyce is 
partnering with its customers and suppliers to provide customised 
solutions expanding further the group’s range of services 
in the marine sector the chilean navy awarded a 20 year 
support contract for ﬁve gas turbine powered ships and in the 
energy sector the longterm service agreement portfolio has 
continued to grow with contracts covering £260 million of equipment 
we have a record of innovation in the service arena 
including early entry into the engine leasing business and 
sophisticated remote diagnostic and data management services 
through our joint venture data systems  solutions this business 
now monitors over 4000 gas turbines on behalf of rollsroyce 
and its customerswe have continued to innovate during 2004 
and have brought our ‘operations room’ online as the hub for 
managing our totalcare contractswe have expanded our offerings 
particularly with respect to the management of customer inventories 
and ﬁeld maintenance through our component care and onwing 
care services 
in response to market demand we are increasing and 
improving our repair and overhaul capacity £45 million is to be 
invested in a new stateoftheart overhaul facility in east kilbride 
replacing the old facilitythis new factory will be completed in 2006 
and will enable signiﬁcant productivity improvements we also 
announced that the location of our n3 joint venture with lufthansa 
technik will be on a site near erfurt in thuringia germanythe 
facility will provide technical support and overhaul services for the 
trent 500 700 and 900 engines which power the airbus a340500 
600 a330 and a380 aircraft respectively 
rollsroyce group plc annual report 2004 25  finance director’s review 
andrew shilston 
£m 
2000 
2001 
2002 
2003 
2004 191 
253 
221 
344 
186 
l 
a record order book 
£m 
repair 
and 
l 
gross assets 107 503 532 1142 
31 410 77 518 
29 51 345 425 
60 461 422 943 
net assets 47 42 110 199 
capital investment 
fixed asset additions at cost 
the group is in a sound 
ﬁnancial position with 
higher proﬁts ower 
average net debt and 
joint ventures rollsroyce share 
financial 
overhau services other total 
debt 
other liabilities 
gross liabilities 
21  
increase in underlying proﬁt before tax 
over 2003 
we made good progress in 2004 better market conditions growing 
services sales and increased efﬁciency all contributed to our 
improved ﬁnancial performance 
results for the year 
underlying proﬁt before tax increased by 21 per cent to £345 million 
2003 £285 million and underlying earnings per share were 1450p 
2003 1220p basic earnings per share were 1207p 2003 704p 
sales increased by £294 million 
sales increased by ﬁve per cent despite an adverse foreign currency 
translation impact of some £200 million 
– 	 civil aerospace engine deliveries increased by ten per cent 
to 824 engines civil aftermarket sales grew by 25 per cent 
– 	 defence aerospace turnover was stable with a small 
increase in services revenues offsetting a slight reduction 
in original equipment sales 
– 	 marine sales were down four per cent sales in the offshore 
oil  gas support market sector were weaker than in 2003 
however order intake recovered somewhat in the second 
half of the year 
– 	 energy sales were ﬂat with sales in the oil  gas 
sector offsetting the effects of the depressed power 
generation market 
group aftermarket services revenues grew by 14 per cent to 
£32 billion and accounted for 55 per cent of total revenues 
aftermarket revenues have grown by 12 per cent compound 
over the last ﬁve years 
eighty ﬁve per cent of sales were to customers outside 
the uk 
gross margin before exceptional items increased from 
174 per cent to 19 per cent margins beneﬁted from some 
improvement in market conditions continuing growth in services 
sales and our focus on cost reduction 
the net interest charge reduced from £90 million to 
£70 millionthis reﬂected a reduction in the level of average net 
debt which was achieved through the group’s improving level 
of proﬁtability and its focus on cash management 
group interest was covered 76 times 2003 49 times 
based upon underlying proﬁt before interest excluding joint 
ventures 
restructuring charges of £37 million 2003 £10 million 
which were incurred for ongoing operational improvements 
were included within operating costs 
the group made an underlying proﬁt before tax of 
£345 million 2003 £285 million after charging nontrading items 
proﬁt before tax was £306 million 2003 £180 million 
net working capital as a percentage of sales was 64 per cent 
2003 68 per cent despite some creation of inventory ahead of the 
introduction of new manufacturing facilities 
 excluding exceptional and nontrading items deﬁned in note 2 
rollsroyce group plc annual report 2004 26  a ﬁnal payment to shareholders of 500p is proposed making a total 
of 818p per ordinary share 2003 818pthe company will continue 
to issue b shares in place of dividends in order to accelerate the 
recovery of its advance corporation tax 
order book 
the order book at constant exchange rates was £189 billion 
2003 £174 billion items are included in the order book when 
a ﬁrm signed contract exists 
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 until they become ﬁrm signed orders 
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 
longterm service agreements including totalcare 
packages for aftermarket services represented 39 per cent of 
the order bookthese are longterm contracts where only the 
ﬁrst seven years’ revenue is included in the order book 
business which has been announced but for which 
contracts have not yet been signed is excluded from the order 
bookthis amounted to a further £24 billion at the year end 
2003 £13 billion 
aftermarket services 
the group continues to be successful in developing its aftermarket 
services activitiesthese accounted for 55 per cent of turnover in 2004 
in particulartotalcare packages in the civil aerospace sector 
now cover 38 per cent of the installed ﬂeettotalcare packages cover 
longterm management of the maintenance and associated logistics 
for our engines and systems monitoring the equipment in service to 
deliver the system availability our customers require with predictable 
coststhe pricing of such contracts reﬂects their longterm nature 
proﬁt is taken progressively on a prudent basis resulting in a net asset 
of £389 million 2003 £454 million on the balance sheet 
cash 
the group cash ﬂow statement is shown on pages 54 and 55 of 
the ﬁnancial statements 
net debt for the year reduced by £243 million to £80 million 
2003 £323 millionthe average net debt level reduced from 
£950 million to £560 million 
the average net debt is expected to reduce further in 2005 
net cash ﬂow from operating activities was £640 million 
2003 £673 million net capital expenditure used £219 million 
2003 £198 million of funds generated 
taxation 
the overall tax charge on the proﬁt before tax was £101 million 
2003 £64 million a rate of 33 per cent 2003 36 per cent 
the tax charge was reduced by £13 million 2003 £12 million 
in respect of the expected beneﬁt of the uk research and development 
tax credit that was introduced with effect from april 1 2002 
the tax charge on underlying proﬁts was £99 million 
2003 £84 million a rate of 29 per cent 2003 29 per cent 
acquisitions and disposals 
during the year the group disposed of rollsroyce gear systems 
inc to triumph group inc resulting in a small proﬁt that has been 
treated as a nontrading item see note 31 
pensions 
for 2004 the charges for pensions costs continue to be calculated 
under ssap 24 and are disclosed in note 30 although the full 
implementation of frs 17 postretirement beneﬁts has been 
deferred pending the introduction of international financial 
reporting standards certain disclosures are required including the 
value of pension scheme assets and liabilities using the new rules 
speciﬁed by frs 17 see note 30 under this standard a snapshot 
is taken of pension fund assets and liabilities at a speciﬁc point in 
time thus movements in equity markets and discount rates will 
create volatility in their calculation additionally frs 17 requires 
a memorandum analysis of the proﬁt and loss charge 
on this basis and after taking account of deferred taxation 
there was a net shortfall of assets over liabilities for the uk schemes 
of £805 million 2003 £855 millionthis deﬁcit is subject to prevailing 
equity markets and discount rates 
during the year the vickers group pension scheme and 
the rollsroyce group pension scheme were subject to actuarial 
reviewtogether these two funds are around one third the size 
of the principal rollsroyce pension fund for which the actuarial 
review was completed in 2003 
investments 
the group continues to subject all investments to 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 
gross research and development investment amounted 
to £601 million 2003 £619 million net research and development 
was £282 million 2003 £281 million net research and 
development investment is expected to remain roughly at the 
same percentage of sales in the future investment in training 
was £30 million 2003 £29 million 
net capital expenditure was £219 million 2003 
£198 million and is expected to be a little ahead of depreciation 
of £223 million over the next few years 
partnerships 
the development of effective partnerships continues to be a key 
feature of the group’s longterm strategy major partnerships are 
of two types joint ventures and risk and revenue sharing partners 
rollsroyce group plc annual report 2004 27  finance director’s review continued 
andrew shilston 
joint ventures 
joint ventures are an integral part of our businessthey are also normal 
business structures for companies participating in international 
collaborative defence projectsthey are involved in engineering 
and manufacturing repair and overhaul and ﬁnancial services 
they share risk and investment bring expertise and access to 
markets and provide external objectivity some of our joint ventures 
have become substantial businesses a major proportion of the 
debt of the joint ventures is secured on the assets of the respective 
companies and is nonrecourse to the groupthe net recourse 
ﬁnancing obligations total £12 million and are included in contingent 
liabilities see note 28 
pembroke the group’s aircraft leasing and management joint 
venture is not regarded as core to the group’s strategy and as markets 
permit the group will be seeking to extract value from this business 
investment in the engine leasing joint venture rollsroyce 
 partners finance a core business activity amounts to £21 million 
and all of its debt is nonrecourse to the group 
risk and revenue sharing partners rrsps 
rrsps have enabled the group to build a broad portfolio of engines 
thereby reducing the exposure of the business to individual product 
riskthe primary ﬁnancial beneﬁt is a reduction of the burden of 
research and development rd expenditure on new programmes 
the related rd expenditure is expensed through the proﬁt and 
loss account and the receipts from partners are also recorded in 
the proﬁt and loss account as other operating income 
rrsp agreements are a standard form of cooperation in 
the civil aeroengine industrythey bring beneﬁts to the engine 
manufacturer and the partner speciﬁcally for the manufacturer 
they bring some or all of the following beneﬁts additional ﬁnancial 
and engineering resource sharing of risk and initial programme 
investment contribution as appropriate the partner also supplies 
components and in consideration receives a share of the longterm 
revenues generated by the engine programme in proportion to its 
purchased programme share 
the sharing of risk is fundamental to rrsp agreements 
in general partners share ﬁnancial investment in the programme 
they share market risk as they receive their return from future sales 
they share currency risk as their returns are denominated in us 
dollars they share sales ﬁnancing obligations they share warranty 
costs and where they are manufacturing or development partners 
they share technical and cost risk 
in 2004 the group secured new partners for the 
trent 1000 engine programme however as the number of new 
programmes has reduced and in particular as government launch 
investment was not sought for the trent 1000 programme receipts 
from partners have declined in 2004 other operating income in respect 
of rrsp agreements amounted to £73 million 2003 £153 million 
and is expected to be at a similar level in 2005 
payments to rrsp partners are recorded within cost 
of sales and increase as the related programme sales increase 
these payments amounted to £240 million 2003 £179 million 
intangible assets 
the group carried forward £911 million 2003 £863 million 
of intangible assets this comprised purchased goodwill of 
£712 million engine certiﬁcation costs and participation fees of 
£145 million and application engineering costs of £54 million 
risk management 
the board has an established structured approach to risk 
managementthe risk committee see report of the directors has 
accountability for the system of risk management and reporting 
the key risks and associated mitigating actionsthe director of risk 
reports to the finance directorthe group’s policy is to preserve 
the resources upon which its continuing reputation viability and 
proﬁtability are built in order to enable the corporate objectives 
to be achieved through the operation of the rollsroyce business 
processes risks are formally identiﬁed and recorded in a corporate 
risk register which is reviewed and updated on a regular basis 
with risk mitigation plans identiﬁed for all signiﬁcant risks 
financial risk 
the group uses various ﬁnancial instruments in order to manage 
the exposures that arise from its business operations as a result of 
movements in ﬁnancial markets all treasury activities are focused 
on the management and hedging of risk it is the group’s policy not 
to trade ﬁnancial instruments or to engage in speculative ﬁnancial 
transactionsthere have been no signiﬁcant changes in the group’s 
policies in the last year 
the principal economic and market risks continue to 
be movements in foreign currency exchange rates interest rates 
and commodity pricesthe board regularly reviews the group’s 
exposures and ﬁnancial risk management and a specialist 
committee also considers these in detail all such exposures are 
managed by the group treasury function which reports to the 
finance director and which operates within written policies 
approved by the board and within the internal control framework 
described in the report of the directors 
the group’s policy is to monitor and manage its exposure 
to counterparties credit limits are set to cover all ﬁnancial 
instruments for each counterpartythe group’s policy is that where 
exposure is only linked to the credit quality of the counterparty 
the related longterm credit rating should be a3a or better 
funding and liquidity 
the group ﬁnances its operations through a mixture of shareholders’ 
funds bank borrowings bonds notes and ﬁnance leasesthe group 
borrows in the major global markets in a range of currencies 
it employs derivatives where appropriate to generate the desired 
currency and interest rate proﬁle 
rollsroyce group plc annual report 2004 28  the group performed some reﬁnancing activity during 2004 to 
extend its debt maturity proﬁle and to reduce future reﬁnancing 
riskthe group successfully raised £500 million following the 
issuance of a seven year a750 million public bond under its euro 
medium term note programmethe proceeds were used to 
replace a number of maturing borrowing facilities or to retire 
other borrowing facilities earlythe group also reduced the size of 
its main £750 million revolving credit facility to £250 million and 
extended its maturity proﬁle from 2007 to 2009 as at december 31 
2004 the group had total committed borrowing facilities of 
£18 billion 2003 £22 billion 
the terms for the recently completed reﬁnancings are 
substantially similar to the group’s previous 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 and no 
material impact on the group’s interest charge is expected to arise 
from a movement in the group’s credit rating 
the group holds ﬁnancial investments and maintains 
undrawn committed facilities at a level sufﬁcient to ensure the 
group has available funds to meet its mediumterm capital and 
funding obligations and to meet any unforeseen obligations and 
opportunitiesthe group from time to time holds cash and short
term investments which together with the undrawn committed 
facilities enable the group to manage its liquidity risk 
the group continues to have access to all the major 
global debt markets 
credit rating 
the group subscribes to both moody’s investor services and 
standard  poors for its ofﬁcial publicised credit ratings as at 
december 31  2004 the group’s assigned longterm credit ratings 
were 
rating agency rating outlook category 
moody’s baa1 negative investment grade 
standard  poors bbb positive investment grade 
the group attaches signiﬁcant importance to maintaining an 
investment grade credit rating which it views as necessary for 
the business to operate effectively 
the group’s medium term objective is to achieve 
through the normal course of business an ‘a’ category investment 
grade credit rating from both agencies 
currency risk 
the group is exposed to movements in exchange rates for both 
foreign currency transactions and the translation of net assets 
and proﬁt and loss accounts of foreign subsidiaries 
the group regards its interests in overseas subsidiary 
companies as longterm investmentsthe group has tended to 
manage its translational exposures through the currency matching 
of assets and liabilities where applicable any mismatch is kept 
under regular review for materiality and subsequent decisions 
regarding risk mitigation 
the group is exposed to a number of foreign currenciesthe most 
signiﬁcant transactional currency exposure is the us dollar followed 
by the euro us dollar income net of expenditure represented 
26 per cent of group turnover in 2004 2003 23 per cent 
the group operates a hedging policy using a variety of 
ﬁnancial instruments with the objective of minimising the impact of 
ﬂuctuations in exchange rates on future transactions and cash ﬂows 
the permitted range of the amount of cover taken is 
determined by the written policies set by the board based on 
known and forecast income levelsthe forward cover is managed 
within the parameters of these policies in order to achieve the 
group’s objectives having regard to the group’s view of longterm 
exchange rates forward cover is in the form of standard foreign 
exchange contracts and instruments on which the exchange rates 
achieved are dependent on future interest ratesthe group also 
writes currency options against a portion of the unhedged dollar 
income at a rate which is consistent with the group’s longterm 
target ratethe premium received from the sale of the options 
is included in the group’s achieved exchange rate at the end of 
2004 the group had approximately us9 billion of forward cover 
2003 us10 billion 
the consequence of this policy has been to maintain 
relatively stable longterm foreign exchange rates note 24 ﬁnancial 
instruments includes the impact of revaluing forward currency 
contracts at market values on december 31 2004 showing a 
value of £986 million 2003 £724 million which will ﬂuctuate 
with exchange rates over timethe group has entered into these 
forward contracts as part of the hedging policy described above 
in order to mitigate the impact of volatile exchange rates 
interest rate risk 
the group uses ﬁxed rate bonds and ﬂoating rate debt as funding 
sourcesthe group’s policy is to maintain a higher proportion of 
net debt at ﬁxed rates of interest having regard to the prevailing 
interest rate outlookto implement this policy the group utilises a 
combination of interest rate swaps forward rate agreements and 
interest caps to manage the exposure 
commodity risk 
the group has an ongoing exposure to the price of jet fuel and 
base metals arising from business operationsthe group’s objective 
is to minimise the impact of price ﬂuctuationsthe exposure is 
hedged in accordance with parameters contained in a written 
policy set by the board 
sales ﬁnancing 
in connection with the sale of its products the group will on some 
occasions provide ﬁnancing support for its customersthis may 
involve the group guaranteeing ﬁnancing for customers providing 
asset value guarantees on aircraft for a proportion of their expected 
future value or entering into leasing transactions 
rollsroyce group plc annual report 2004 29  finance director’s review continued 
andrew shilston 
the group manages and monitors its sales ﬁnance related 
exposures to customers and products within written policies 
approved by the board and within the internal framework 
described in the report of the directorsthe permitted levels of 
gross and net exposure are limited in aggregate by counterparty 
by product type and by calendar year 
the board regularly reviews the group’s sales ﬁnance 
related exposures and risk management activities each ﬁnancing 
commitment is subject to a credit and asset review process and 
prior approval by the chief executive and the finance director 
the group operates a sophisticated riskpricing model to assess 
risk and exposure costs and exposures associated with providing 
ﬁnancing support are incorporated in any decision to secure 
new business 
the group seeks to minimise the level of exposure from 
sales ﬁnance commitments by 
–	 the use of third party nonrecourse debt where 
appropriate 
–	 the transfer sale or reinsurance of risks and 
–		e nsuring the proportionate ﬂow down of risk and 
exposure to relevant rrsps 
each of the above forms an active part of the group’s exposure 
management process 
where exposures arise the strategy has been and 
continues to be to assume where possible liquid forms of ﬁnancing 
commitment that may be sold or transferred to third parties when 
the opportunity arises 
contingent liabilities 
note 28 to the accounts describes the group’s contingent 
liabilities under sales ﬁnancing arrangements 
the gross contingent liability reduced to £999 million 
2003 £1090 million of which £12 million 2003 £39 million related 
to sales ﬁnancing support provided to joint venturesthe gross 
contingent liability ﬁgure is calculated by aggregating the 
maximum exposure on all such sales ﬁnancing commitments 
before applying the value of the underlying security but offsetting 
sums separately insured and sums provided for in the balance 
sheet in 2004 provisions against customer ﬁnancing exposures 
were increased by £51 million and £27 million of existing provisions 
were utilised provisions of £116 million were carried forward in 
respect of sales ﬁnancing commitments see note 22 
the group’s contingent liabilities are divided approximately 
6040 between asset value guarantees avgs and credit guarantees 
they are spread over many years and relate to a number of 
customers and a broad product portfoliothe contingent liabilities 
represent the maximum aggregate gross and net exposure that the 
group has in respect of delivered aircraft regardless of the point in 
time at which such exposures may arise exposures are not reduced 
to a net present value for the purposes of reporting the group’s 
contingent liabilities 
the group uses airclaims limited as an independent appraiser 
to value its security portfolio at both the halfyear and yearend 
airclaims provides speciﬁc values both current and forecast future 
values for each asset in the security portfoliothese values are then 
used to assess the group’s net exposure 
after taking account of the underlying security the group’s 
net contingent liability increased slightly to £189 million 2003 
£184 millionthe year on year movement in reported contingent 
liabilities reﬂects the utilisation of sales ﬁnance commitments in 
the last year the expiry of existing contingent liabilities through 
natural debt retirement or risk transfer and additionally in the 
case of net contingent liabilities the changes in the level form 
and value of any underlying security 
in reporting the group’s contingent liability with respect 
to sales ﬁnancing the group includes a net exposure stress test 
which incorporates the impact of a 20 per cent fall in the value of 
all securities compared to the airclaims’ current and future values 
application of this stress test results in a net contingent liability 
of £277 million 2003 £262 million 
the directors regard the possibility that there will be 
any signiﬁcant loss arising from these contingencies as remote 
the group took charges and made prudent provisions 
against exposures in 2004 
international financial reporting standards 
all european union listed companies are required to adopt 
international financial reporting standards ifrs for their ﬁnancial 
statements from 2005 which will include comparative information 
for 2004 an initial evaluation of the impact of ifrs was provided in 
the 2003 annual reportthe group has continued its preparatory 
workto enable it to report under ifrs for the ﬁrst time when it 
announces its interim 2005 results prior to this it is the group’s 
intention to restate the 2004 results on an ifrs basis to allow the 
impact to be interpreted and adequately understood 
the key areas of impact for rollsroyce relate to 
– 	 financial instruments accounting under ias 32 and ias 39 
– 	 capitalisation of development expenditure under ias 38 
–	 the impact of ias 32 and ias 39 on accounting for rrsp 
receipts and payments 
– 	 pension scheme accounting under ias 19 
– 	 fair valuing share option schemes in accordance with 
ifrs 2 and 
– 	 the cessation of goodwill amortisation in accordance 
with ifrs 3 
financial instruments 
as noted earlier a signiﬁcant element of the group’s trading is 
denominated in us dollars in order to reduce the impact of 
currency volatility the group takes signiﬁcant levels of forward 
cover currently gains or losses which are realised on these forward 
exchange contracts are taken to the proﬁt and loss account in the 
same period as the underlying transaction 
rollsroyce group plc annual report 2004 30  280 
260 
240 
220 
200 
180 
160 
2000 1938 
2001 2020 
2002 1110 
2003 1220 
2004 1450 
pence 
rollsroyce share price performance 2004 
pence 
january december 
underlying eps 
excluding exceptional and nontrading items
  defined in note 2 
ias 39 financial instruments requires all hedges to be strictly 
designated against speciﬁc income and the hedge effectiveness 
tested all such instruments are required to be revalued to market 
values at the balance sheet date if the hedging criteria are not 
achieved then the change in value is taken to the proﬁt and 
loss account 
as contracts may be signed several years in advance of 
delivery the delivery dates and hence payment dates on contracts 
may change and meeting the strict hedging criteria for all contracts 
may not be practicable resulting in potential volatility in the reported 
proﬁt and loss account and balance sheet similar requirements 
apply to instruments used to manage commodity and interest rate 
exposures although for the latter hedging criteria are more easily 
attainable in assessing the adoption of ias 39 the group has no 
plans to amend the underlying policy for the economic hedging 
of its exposures 
development expenditure 
the group’s expenditure on selffunded research and development 
is of the order of £300 million per annum since privatisation in 
1987 such expenditure has been expensed as incurred ias 38 
intangible assets requires development expenditure meeting 
certain recognition criteria to be capitalisedthis standard is to 
be applied retrospectively hence the intangible asset will include 
amounts expensed in previous years impairment testing will be 
required at each balance sheet date 
the key eligibility criteria for capitalisation relate to technical 
feasibility and the generation of future economic beneﬁtthis is 
unlikely to be achieved until around the time of engine certiﬁcation 
or its equivalent for nonaero products 
rrsps 
the accounting treatment for the majority of rrsps will not change 
under ifrs however certain rrsp arrangements must be treated 
as ﬁnancial instruments under the provisions of ias 32 such rrsp 
arrangements will be recategorised as ﬁnancial liabilities and 
recognised at amortised cost 
pension scheme accounting 
under ias 19 employment beneﬁts the net position on the 
group’s pension schemes based on market values will be included 
on the balance sheetthis will be broadly in line with frs 17 
amounts disclosed in note 30 
share options 
under ifrs 2 sharebased payments for all employee share 
schemes a fair value calculated using an option pricing model 
is required to be expensed 
goodwill 
in accordance with ifrs 3 business combinations the amortisation 
of goodwill is prohibited instead impairment tests are required at 
each balance sheet date 
share price 
during the year rollsroyce shares increased by 39 per cent from 
17725p to 247p per share compared to a 32 per cent increase 
for the aerospace and defence sector and an eight per cent 
increase for the ftse100 the company’s shares ranged in price 
from 1675p in january to 269p in november 
the number of shares in issue at the end of the year was 
1705 million an increase of 38 million of which 2 million related 
to share options 11 million related to scrip dividends and 25 million 
related to conversion of b shares into ordinary shares 
the average number of shares in issue was 1690 million 
2003 1647 million underlying earnings per share were 1450p 
an increase of 19 per cent over 2003 
the proposed ﬁnal payment per share of 500p will result 
in a total payment of 818p per share see report of the directors 
page 33 
financial services 
the ﬁnancial services businesses comprise engine leasing 
rollsroyce  partners finance aircraft leasing pembroke and 
electrical power project development rollsroyce power ventures 
rollsroyce  partners finance the group’s joint venture 
engine leasing business owns a portfolio of 273 engines with 
39 customersthe proportion of engines on lease remains high 
at 99 per cent by value 
pembroke the group’s joint venture aircraft leasing 
business owns 28 aircraft on lease to 13 customers 100 per cent 
by value of the owned aircraft ﬂeet is on lease a major reﬁnancing 
of boeing 737 aircraft was concluded during the year without 
parent company support and a charge of £8 million was taken 
in connection with boeing 717 exposure 
rollsroyce power ventures the group’s power project 

developer has 14 power generation projects under way 

the business continues to be restructured and net charges 

of £5 million were taken 

andrew shilston 
finance director 
rollsroyce group plc annual report 2004 31  membership of principal board committees 
board of directors 
audit committee – p j byrom chairman i c conn sir robin nicholson and i c strachan 
remuneration committee – c g symon chairman hon a l bondurant p j byrom c­p forster and 
at february 9 2005 
simon m robertson  non­executive chairman 
appointed to the board in 2004 and appointed non­executive chairman in 
january 2005 he is president of goldman sachs europe limited and a managing 
director of goldman sachs international and a non­executive director of 
inchcape plc and berry bros  rudd ltd he is chairman of the royal academy 
trust a director of the royal opera house covent garden limited and a trustee of 
the eden project the st paul’s development foundation and the royal opera 
house endowment fund he is a former non­executive director of the london 
stock exchange and former chairman of dresdner kleinwort benson age 63 
sir john rose  chief executive 
appointed to the board in 1992 he joined rolls­royce in 1984 and was 
appointed chief executive in 1996 he is a non­executive director of eli lilly and 
company in the us age 52 
hon amy l bondurant  non­executive director 
appointed to the board in 2003 managing director of bozman partners a private 
investment fund with ofﬁces in washington and paris a board member of the 
american hospital in paris and a member of the council on foreign relations and 
of the council of american ambassadors a former us ambassador to the oecd 
from 1997 t o 2001 and former senior member partner and board member of 
washington dc law ﬁrm verner liipfert bernhard mcpherson and hand and 
former senior counsel to the united states senate committee on commerce 
science and transportation and to the consumer sub committee age 53 
peter j byrom bsc fca  senior independent non­executive director 
appointed t o the board in 1997 he is chairman of domino printing sciences plc 
and molins plc and a non­executive director of wilson bowden plc he is a fellow 
of the royal aeronautical society he was a director of n m rothschild  sons 
limited from 1977 to 1996 age 60 
john p chefﬁns bsc ing freng fraes  chief operating ofﬁcer 
appointed t o the boar d in 2001 he joined rolls­royce in 1967 became president 
and chief executive ofﬁcer of rolls­royce industries canada inc in 1991 director 
civil engine business in 1993 president – civil aerospace in 1998 and chief 
operating ofﬁcer in 2001 he is a fellow of the royal academy of engineering and 
of the royal aeronautical society he is a member of the institution of electrical 
engineers and of the order of engineers of quebec age 57 
iain c conn  non­executive director 
appointed to the board in january 2005 he is an executive director of bp plc 
having held a range of executive positions within the bp group worldwide 
he is c hairman of the advisory board of the imperial college london tanaka 
business school age 42 
carl­peter forster  non­executive director 
appointed to the board in 2003 president of general motors europe and 
chairman of the supervisory board of adam opel ag he is chairman of the 
supervisory boards of the germany based asic manufacturer zmd ag and the 
austrian based private equity company lead equities ag former managing 
director of bmw south africa and former executive board member for 
manufacturing at bmw ag age 50 
colin h g reen bsc  ceng freng fimeche fraes 
president – defence aerospace 
appointed to the board in 1996 he joined rolls­royce in 1968 became director – 
military engines in 1989 executive vice president – business operations allison 
engine company inc in 1995 managing director – aerospace group in 1996 
director – operations in 1998 and was appointed president – defence aerospace 
in 2001 he is a fellow of the royal academy of engineering the roya l 
aeronautical society and the institution of mechanical engineers he is also 
deputy president of the society of british aerospace companies age 56 
sir john taylor

nominations committee – s m robertson chairman hon a l bondurant p j byrom c­p forster

sir john rose i c strachan and c g symon

james m guyette bsc 
president and chief executive ofﬁcer of rolls­royce north america inc 
appointed to the board in 1998 he became president and chief executive ofﬁcer 
of rolls­royce north america inc in october 1997 he is a director of the private 
bank and trust company of chicago illinois and of pricelinecom inc until 1994 he 
was executive vice president marketing and planning of united airlines age 59 
dr michael g j w howse obe freng fimeche finstp  fraes ceng phd 
cphys finstp  director – engineering and technology 
appointed to the board in 2001 he joined rolls­royce in 1968 and has held a 
variety of positions within engineering including chief development engineer 
rb211 development head of advanced engineering for the aerospace group 
director of engineering and technology – civil aerospace he is a fellow of the 
royal academy of engineering royal aeronautical society institution of 
mechanical engineers and the institute of physics a board member of the 
engineering and technology board a member of the dti technology strategy 
board visiting professor in the school of mechanical engineering at cranﬁeld 
university age 62 
sir robin nicholson freng frs  non­executive director 
appointed to the board in 1986 he is a fellow of the royal academy of 
engineering a fellow of the royal society and a non­executive director of bp plc 
until 1996 he was an executive director of pilkington plc and he was a member of 
the uk government’s council for science and technology from its inception in 
1993 until 2000 age 70 
andrew b shilston ma aca mct  finance director 
appointed to the board as finance director in january 2003 having joined 
rolls­royce in november 2002 he is a non­executive director of cairn energy plc 
he was finance director of enterprise oil plc from 1993 until 2002 age 49 
ian c strachan  non­executive director 
appointed t o the boar d in 2003 non­executive chairman of instinet group inc 
and a non­executive director of reuters group plc johnson matthey plc 
xstrata plc and transocean inc he is the former chief executive of btr plc former 
deputy chief executive 1991 to 1995 and chief financial ofﬁcer 1987 to 1991 
of rio tinto plc and a former non­executive director of commercial union age 61 
carl g symon bsc msc  non­executive director 
appointed to the board in 1999 he is chairman of a number of private 
companies and a non­executive director of bt group plc and rexam plc he was 
previously chairman and chief executive ofﬁcer ibm uk he held numerous 
executive positions in ibm corp in canada usa latin america and asia during a 
32 year international career age 58 
prof sir john taylor obe frs freng  non­executive director 
appointed to the board in 2004 he is currently chairman of roke manor 
research ltd and chair of the south west rda’s shadow science and industry 
council he is also a member of council of the royal academy of engineering an 
honorary fellow of emmanuel college cambridge and a visiting professor at 
oxford university he is the former director general of research councils and the 
former director of hewlett packard laboratories bristol he previously served as 
president of the institution of electrical engineers and as chairman of the uk 
technology foresight panel in it e lectronics and communications age 61 
charles blundell ma  company secretary 
he joined rolls­royce in 1993 and was appointed company secretary in 1995 
age 53 
rolls­royce group plc annual report 2004 32  report of the directors

the directors present their report and the audited ﬁnancial statements of 
rolls­royce group plc the company for the year ended december 31 2004 
principal activities 
the principal activities of the group are described in the proﬁle on the inside 
front cover 
results for the year 
the chairman’s statement the chief executive’s review and the finance director’s 
review describe the year’s operations research and development activities and 
prospects 
at the company’s annual general meeting agm in may 2004 shareholders 
approved the issue of b shares as a new method for making payments to 
shareholders rather than paying a cash dividend under this arrangement 
shareholders are given the opportunity to redeem their b shares for cash or to 
convert them into additional ordinary shares in the companythe company 
believes strongly that there continues to be considerable beneﬁt from the issue 
of b shares future payments to shareholders will be made through further issues 
of b shares generally in january and july each year 
at the agm on may 4 2005 the directors will recommend an issue of 50 
b shares with a total nominal value of 500p for each ordinary share which 
together with the interim issue on january 4 2005 of 318 b shares for each 
ordinary share is the equivalent of a total payment to ordinary shareholders of 
818p for each ordinary share for the year 
for those shareholders who have not elected to redeem or convert their 
b shares a b share dividend at a rate of 75 per cent of the london interbank 
offered rate libor is payable half yearly in arrears 
directors 
directors who held ofﬁce during 2004 are listed on page 32 with the exception of 
mr d e b aird lord moore of l ower marsh and sir john weston following an illness 
in december 2003 mr d e baird resigned as a non­executive director and 
chairman of the company with effect from june 21 2004 sir john weston retired 
as a non­executive director on december 1 2004 lord moore of lower marsh 
served as acting chairman from december 17 2003 to june 21 2004 following 
mr d e baird’s resignation on june 21 2004 lord moore served as chairman on an 
interim basis until his retirement on december 31 2004 
sir john taylor and mr i c conn were appointed as independent 
non­executive directors with effect from november 5 2004 and january 20 2005 
respectively mr s m robertson was appointed as a non­executive director with 
effect from n ovember 5 2004 and as non­executive chairman with effect from 
january 1 2005 
on his appointment mr s m robertson met the criteria for independence 
contained in the combined code before his appointment he disclosed to the 
board his other signiﬁcant commitments which are described on page 32 he has 
since retired from the board of invensys plc and will be retiring from the board of 
inchcape plc at or before its annual general meeting in 2005 details of the 
process followed by the company in respect of mr robertson’s appointment are 
given on page 35 
under the c ompany’s articles of association one third of the directors are 
subject to re­election every year with each director also being subject to 
re­election at intervals of not more than three years any director appointed 
during the year is separately required to retire and seek re­election by the 
shareholders at the next agm for the last two years the board has adopted the 
approach of r equiring all the directors to retire each year and to seek re­election 
at the agmthe board has reviewed this policy and has concluded that it should 
in future adopt the approach contained in the articles of association it will in 
addition require any non­executive director who has served on the board for 
more than nine years to be subject to annual re­election at the agmthe board 
believes that this revised approach is fully consistent with uk corporate 
governance best practice and is in the interests of the company and its 
shareholdersthe directors retiring at this year’s agm are the hon a l bondurant 
mr j p chefﬁns mr j m guyette and mr a b shilston as newly appointed directors 
mr s m robertson mr i c conn and sir john taylor will also retire at the agm in 
2005they all offer themselves for re­election sir robin nicholson will retire as a 
non­executive director of the company at the conclusion of the agm in 2005 and 
will not therefore be seeking re­election 
the non­executive directors are appointed by the board on the basis of 
recommendations put to it by the nominations committee all the non­executive 
directors are considered by the board to be independent of management and 
free of any relationship which could materially interfere with the exercise of their 
independent judgementthe board reviews the independence of non­executive 
directors at least annually 
the board does not accept the view that a non­executive director 
automatically loses his or her independence after serving as a director for more 
than three consecutive terms of three yearsthe board considers that in a 
long­t erm complex and technologically advanced business it is essential that 
non­ex ecutive directors have the opportunity to acquire over a number of years 
the experience and knowledge of the business and the sectors within which the 
group op eratesthe board therefore concluded that sir robin nicholson who has 
served on the board for more than nine years remained fully independent during 
the year 
lord moore who retired on december 31 2004 had also served on the 
board for more than nine years for the reasons explained above the board took 
the view that he remained fully independent until june 21 2004 but that on 
appointment as interim chairman he should no longer be considered as 
independent he therefore resigned as a member of the audit and remuneration 
committees and ceased to be the company’s senior independent director with 
effect from that date 
the company has entered into separate deeds of indemnity in favour of its 
directorsthe deeds provide substantially the same protection as that already 
provided to directors under the indemnity in article 170 of the company’s 
articles of associationthe company has also arranged appropriate insurance 
cover for legal action taken against its directors 
corporate governance 
the c ompany is committed to the highest standards of corporate governance 
the board conﬁrms that throughout 2004 the company complied with the 
provisions of the combined codethis report and where appropriate the 
directors’ remuneration report describe how the board has applied the principles 
and complied with the provisions of the combined code 
the board 
the board currently comprises a non­executive chairman a chief executive ﬁve 
other executive directors and eight non­executive directors 
the division of responsibilities between the chairman and chief executive is 
established in writing and agreed b y the boar dthis document was revised and 
updated prior to the appointment of mr s m robertson as chairman 
following lord moore’s appointment as interim chairman on june 21 2004 
sir robin nicholson w as app ointed as the company’s senior independent 
director he performed this role until february 9 2005 when he was succeeded by 
mr p j b yrom 
biographical details of the board including other signiﬁcant commitments 
are given on page 32 
rolls­royce group plc annual report 2004 33  report of the directors continued 
information and professional development board meetings 
on joining the board newly appointed directors follow a comprehensive the board met eight times during the year details of the directors’ attendance are 
induction programme and receive relevant information on the group over the contained in the table below 
induction period new directors visit key sites and meet with the business sector 
presidents and other employees to gain knowledge and understanding of the board committees 
group and its business in addition an existing executive director acts as a mentor details of the membership of board committees and their principal terms of 
to each newly appointed non­executive director providing guidance and reference are set out on pages 35 and 41the full terms of reference for these 
information as required board committees are available in the investors section on the group’s website at 
there is an agreed procedure for directors to take independent professional wwwrolls­roycecom attendance at the three principal board committees is 
advice at the company’s expensethis is in addition to the access every director shown in the table below 
has to the company secretary and the general counsel 
attendance at meetings of the board and its principal committees in 2004 
board charter  board audit nominations remuneration 
the board has approved the following charter summarising its core director held  attended held  attended held  attended held  attended 
responsibilities mr j p chefﬁns  8  8 
mr c h green  8  7 
primary goal mr j m g uyette 8  8 
creating value for the long­term investor in the company is the primary goal of dr m g j w howse  8  8 
directors and underpins all decisions taken by the board sir john rose  8  8  10  10 
mr a b shilston 8  8 
the b oard’s tasks mr d e baird  3  – 
consistent with this primary goal the board’s tasks are to hon a l bondurant  8 8 10 10 
– ensure that when executed the group’s strategic and ﬁnancial plans mr p j byrom 8 8 4 4 6 6 4 4 
generate shareholder value and that the necessary ﬁnancial and human mr c­p f orster 8 8 6 5 4 4 
resources are in place to deliver those plansthe board will review and lord moore of lower marsh 8 8 2 2 10 10 
approve major allo cations of capital and signiﬁcant business decisions to sir robin nicholson  8 7 4 3 10 10 
ensure that they are fully in line with the primary goal mr s m robertston 2 2 
– ensure that effective controls are in place to manage risk mr i c strachan  8  8 4 4 6 5 
– monitor progress and ensure that the group’s ﬁnancial and other forms of mr c g s ymon  8 7 6 6 4 4 
reporting present an accurate assessment of the group’s position and sir john taylor 2 2 
prospects and are effectively communicated to shareholders and other sir j ohn  weston  7 6 6 6 3 3 
stakeholders 
during the period a director was in ofﬁce or a member of a committee 
– ensure that the group meets the highest legal and ethical standards 
– evaluate continuously the performance of the group’s senior executives and 
develop an effective remuneration policy 
the group executive 
the g roup executive is responsible for the management of the group within the 
– ensure that succession plans are in place for board directors and senior 
strategy determined by the board it is chaired by sir john rose chief executive 
executives and approve candidates for election to the board 
and its other members are 
– establish the necessary committees to enable the board to fulﬁl its charter 
mr a arendt chairman rolls­royce deutschland ltd  co kg 
and 
mr b baker commercial director and general counsel 
– evaluate the effectiveness of the board and its committees at least annually 
mr c e blundell company secretary and director of government relations 
mr j p c hefﬁns chief op erating ofﬁcer 
operation of the board 
mr m cowdry director – services 
the board has a schedule of matters reserved to it for decision which is updated 
mr e t curley president – energy 
annuallythe requirement for board approval on these matters is understood and 
mr c h g reen president – defence aerospace 
communicated widely throughout the group 
mr j m guyette president and chief executive ofﬁcer of 
the directors have full and timely access to all relevant information to enable 
rolls­r oyce north america inc 
the board to function effectively 
mr c j hole director of procurement 
dr m g j w howse director – engineering and technology 
dr s lanyado president – marine 
dr m lloyd director – gas turbine operations 
mr j r rivers director – human resources 
mr a b shilston finance director 
mr m j terrett president – civil aerospace 
rolls­royce group plc annual report 2004 34  report of the directors continued 
nominations committee 
in 2004 the nominations committee was chaired by lord moore of lower marsh 
with effect from january 1 2005 the committee was chaired by 
mr s m robertson its members were the hon a l bondurant sir robin nicholson 
and sir john rose until may 10 2004 when mr p j byrom mr c­p forster 
mr i c strachan mr c g symon and sir john weston joined the committee to 
enable all the then non­executive directors to participate in the search and 
appointment process for a new chairman on his retirement from the board 
sir john weston ceased to be a member of the committee with effect from 
december 1 2004the committee met ten times during the yearthe number of 
meetings attended by each member is shown in the table on page 34 with 
effect from february 9 2005 the membership of the committee comprised the 
hon a l bondurant mr p j byrom mr c­p forster sir john rose mr i c strachan 
and mr c g symon with mr s m robertston continuing to serve as chairman of 
the committee 
in the ﬁrst quarter of each year the committee reviews the performance of 
each directorthe performance of the chairman is appraised annually at a 
meeting of the non­executive directors chaired by the senior independent 
director 
the c ommittee also leads the annual process which enables the board to 
evaluate the effectiveness of its performancethis involves the completion of a 
written questionnaire by all directors of the companythe results of this exercise 
are subsequently r eviewed by the board 
the committee makes recommendations to the board on the appointment 
of executive and non­executive directors and on the membership of board 
committees it is assisted in the f ormer task by external recruitment consultants 
the committee reviews succession planning for appointments to the board and 
to other senior positions within the group in the case of the appointment of 
mr s m robertson as chairman the committee conﬁrms that an external 
consultancy was used to assist with the search processthe committee also 
prepared a detailed job description and made an assessment of the time 
commitment required 
in carrying out its tasks the committee gives careful consideration to the 
balance of skills required on the board including the need to reﬂect diversity 
international experience and managerial and business skills before 
recommending any appointment to the board the committee satisﬁes itself that 
the appointee will have sufﬁcient time available to discharge his or her 
responsibilities effectively 
remuneration committee 
the remuneration committee’s membership and principal terms of reference are 
set out in the directors’ remuneration report on pages 41 to 51the committee 
met four times during the yearthe number of meetings attended by each 
member is shown in the table on page 34 
audit committee 
the audit committee consists exclusively of independent non­executive directors 
and is chaired by mr p j byrom who has recent and relevant ﬁnancial experience 
in 2004 its other members were sir robin nicholson and mr i c strachan 
lord moore served on the committee until june 21 2004 mr i c conn became a 
member of the committee with effect from january 20 2005the committee met 
four times during the yearthe number of meetings attended by each member is 
shown in the table on page 34 
the committee has responsibility for reviewing the group’s ﬁnancial reporting 
and accounting policies including major announcements to the london stock 
exchange and the group’s approach to international financial reporting 
standards it is also responsible for the relationship with the external auditors and 
for the internal audit function which is termed business assurance in addition 
it reviews the group’s procedures for detecting monitoring and managing the 
risk of fraud 
the committee is responsible for recommending to the board the 
appointment of the external auditors it is also responsible for reviewing the scope 
of the audit approving the audit fee and on an annual basis satisfying itself that 
the auditors are independent 
in addition the committee is responsible for assessing the group’s 
internal controls and its systems for assessing and mitigating ﬁnancial and 
non­ﬁnancial risk 
in order to safeguard auditor independence and objectivity the following 
policy is applied in relation to services provided by the auditors 
audit related services – these are undertaken by the auditors as it is work that 
they must or are best suited to performit includes formalities relating to 
borrowings shareholder and other circulars risk management services various 
regulatory reports and work in respect of acquisitions and disposals 
tax accounting and mergers and acquisitions – the auditors are used for this 
work where they are best suited to undertake it all other signiﬁcant consulting 
work in these areas is put out t o tender 
all other advisory servicesconsulting – the auditors are generally prohibited 
from providing these services 
throughout the year the c ommittee monitors the cost of non­audit w ork 
undertaken by the auditors and is therefore in a position to take action if at any 
time it believes that there is a risk of the auditors’ independence being 
undermined through the award of this work 
the committee reviews and approves the business assurance work 
programmes and ensures that this function is adequately resourced and 
co­ordinated with the work of the external auditors 
risk committee 
the risk committee is chaired by sir john rose and its other members are 
mr j p chefﬁns mr c h green mr j m guyette dr m g j w howse and 
mr a b shilstonthe committee is responsible for the group’s risk management 
and for reporting to the board key risks and the associated mitigating actions 
political dona tions 
in line with its established policy the group made no political donations 
during 2004 
communication with shareholders 
the company attaches importance to the effectiveness of its communications 
with shareholders it publishes an annual review and summary ﬁnancial 
statement as well as a full annual reportthere are also separate reports for 
environment and community relations 
the company maintains a regular dialogue with institutional shareholders 
including making pr esentations t o them af ter the preliminary and interim results 
in october 2004 the company held a major investors’ seminar in new york at 
which the presidents of the business sectors and other senior executives 
described the g roup’s businesses and key strategic priorities all shareholders 
can gain access to these and other presentations as well as to the annual report 
and other inf ormation about the g roup on the group’s website at 
wwwrolls­roycecom 
rolls­royce group plc annual report 2004 35  report of the directors continued 
holders of ordinary shares may attend the company’s agm at which the 
company highlights key business developments during the year and at which 
shareholders have an opportunity to ask questionsthe chairmen of the audit 
remuneration and nominations committees are available to answer any questions 
from shareholders on the work of their committees 
the company conﬁrms that it sends the agm notice and relevant 
documentation to all shareholders at least 20 working days before the date of 
the agm for those shareholders who have elected to receive communications 
electronically notice is given of the availability of documents on the 
group’s website 
responsibility for maintaining regular communications with shareholders 
rests with the executive management team led by the chief executive however 
the board is informed on a regular basis of key shareholder issues including 
share price performance the composition of the shareholder register and city 
expectations independent research is commissioned annually into institutional 
shareholder perceptions of the groupthe senior independent director and 
the non­executive directors also have the opportunity to meet with shareholders 
as appropriate 
internal controls and risk management 
directors’ responsibilities 
the directors ar e responsible for the group’s system of internal control and for 
maintaining and reviewing its effectiveness from both a ﬁnancial and operational 
perspectivethe system of internal control is designed to manage rather than 
eliminate the risk of failur e to achieve business objectives and to provide 
reasonable but not absolute assurance against material misstatement or loss 
the group’s approach to internal control is based on the underlying principle of 
line management’s accountability for control and risk management 
in reviewing the effectiveness of the system of internal control the board has 
taken account of the results of all the work carried out to audit and review the 
activities of the group 
there is an ongoing process to identify assess and manage risk including 
those risks affecting the group’s reputationthis process is subject to continuous 
improvement and has been in place throughout the ﬁnancial year to which these 
statements apply and up to the date of their approval 
the board has reviewed the risk management process and conﬁrms that it 
complies with the turnbull committee guidance on internal control 
the board has a risk committee chaired by the chief executive with speciﬁc 
accountability for the system of risk management and for reporting key risks and 
their associated mitigating actions to the board details of the membership of the 
committee are set out on page 35 
organisation 
the group has a clearly deﬁned organisational structure within which operational 
management have detailed responsibilities and levels of authorisation supported 
by written job descriptions and operating manuals 
rolls­royce also has a code of business conduct which lays down the 
principles t o be followed by employees in the course of conducting business 
the code also gives guidanc e to support achievement of the required standards 
additionally conﬁdential reporting lines enable uk and us employees to report 
outside the normal management chain any concerns they may have with regard 
to business c onduct 
risk management system 
the risk management system is an integral part of management’s approach to 
delivering business objectives and is a systematic process designed to identify 
assess treat manage and communicate risks it also provides a method of 
escalation and delegation to the appropriate level within the organisation and 
ensures actions are owned deﬁned resourced and effective 
management is responsible for the ongoing identiﬁcation and evaluation of 
signiﬁcant risks within their areas of responsibility and using a common process 
for the operation of suitable controls or mitigation actions risks are recorded in 
regularly updated risk registers operating at all levels of the organisation and are 
continuously reviewed and monitored during the review processes signiﬁcant 
emphasis is placed on learning from and sharing prior experience risks may arise 
from a variety of internal and external sourcesthey may be associated with 
regulations customer requirements and competitor actions or could result from 
the capability of the processes used to execute the business or from external and 
largely unpredictable events such as terrorist activity or war 
risks irrespective of source are managed through processes operated by 
project and functional teams management reports regularly to the risk 
committee on its view of risks and how they are managed so that the board can 
then c onsider and review these risks in terms of their potential impact 
management has continued to perform comprehensive risk reviews for all 
key projects programmes and business change plans in addition all the 
processes op erated by the group are subject to continuous improvement 
including the risk management process itself 
systems of in ternal c ontrol 
the general managers of individual businesses are aware of their responsibility to 
operate systems of internal control which provide reasonable assurance of 
effective and efﬁcient operations reliable ﬁnancial information and compliance 
with laws and regulations financial managers are required to acknowledge in 
writing that their routine ﬁnancial reporting is based on reliable data and that 
their results are properly stated in accordance with group requirements 
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 are reported monthly against budget and variances 
reviewed 
the activities of the group are subject to review by the department of risk 
including business assurance and project risk assessment and the assurance 
functions of health safety and environment quality and engineering 
these functions operate to work programmes agreed by the appropriate 
board member 
the business assurance function which works closely with the external 
auditors undertakes a programme of ﬁnancial and operational audits and reviews 
agreed by the audit committee and covering all group activitiesthe programme 
includes independent reviews of the systems of internal control and risk 
management findings are reported to the audit committee four times a year 
and t o the risk committee twice a year 
corporate social responsibility 
the g roup c ontinues t o attach imp ortance to the pursuit of excellence as a 
responsible corporate citizen in its operations throughout the world and to 
develop its approach to corporate social responsibility csr by far the greatest 
contribution the group makes in this area comes from the wealth created by 
maintaining highly skilled jobs which arise from its business activitiesthe board 
believes tha t progress in csr will deliver competitive advantage and will 
contribute to the group’s long­term successthe group has well­developed 
policies on issues such as health safety and environment supply chain charitable 
rolls­royce group plc annual report 2004 36  report of the directors continued 
donations community involvement employment policy and employee learning 
and development details of these policies are set out on pages 37 to 39 during 
the year the group’s strengthened performance in csr was recognised by the 
group’s ranking in 10th position in the 2003 uk’s business in the community 
corporate responsibility index and by its continued inclusion in the dow jones 
sustainability index 
supply chain 
through its supplier quality system  ‘supplier advanced business relationships’ 
sabre rolls­royce makes its approved suppliers aware of the performance 
standards expected of them sabre includes a supplier code of conduct which 
was amended in 2004 to refer more explicitly to health safety and environment 
issuesthe code is being communicated to suppliers through a series of 
environmental conferences and an external newsletter group csr issues affecting 
suppliers are evaluated on a regular basis as is the performance of individual 
suppliers in addition supplier evaluations are also taking place on a prioritised 
basisthe supplier code of conduct is supported by an equivalent internal 
rolls­royce purchasing code of conduct to ensure consistency of approach 
an annual review takes place to ensure that rolls­royce corporation in the 
usa c ontinues to meet us government requirements to source from the 
required quota of small and disad vantaged businesses 
health safety and environment hse 
the hse committee chaired by the chief executive is responsible for policy 
development and assurance setting group objectives and targets performance 
review management system review and reportingthe group is supported by 
the environmental advisory board eab the membership of which includes 
external members who are respected authorities in their ﬁeldsthe eab reviews 
and makes independent recommendations on the environmental and 
sustainability aspects of the group’s activities 
the major incident board chaired by the chief operating ofﬁcer reviews 
incidents to make sure that the lessons learnt are effectively communicated 
throughout the group incidents considered during the year related to a diesel 
spill at the bristol site a ﬁre at the indianapolis plant and an engine handling 
incident at the civil aerospace test facility in derby 
the corporate hse audit programme provides an independent assessment 
of the level of implementation of the group’s hse management system several 
hse audits were completed in 2004 covering operations in the uk germany 
norway south korea and north america good progress continues to be made 
with the implemen tation of the group­wide standard for an integrated hse 
management system hse reviews were also undertaken at joint venture 
operations in south east asia and at selected suppliers in china 
during 2004 the environment report ‘powering a better world’ conﬁrmed the 
successful achievement of the challenging ﬁve year targets set in 1998 covering 
key performance indicators for hse following on from this new three year 
targets have been set covering energy use solid waste solid waste recycling 
hazardous liquid waste and lost time injury rate programmes are also in place 
aimed at producing a signiﬁcant change in performance in these areasthe 
group is continuing to work with deloitte and touche llp  who provided external 
assurance of the 2003 en vironment report an update containing data for 2004 
and progress against the targets will be published on the rolls­royce website 
during 2005 
the g roup op erates three sites in the uk which manufacture test and 
support nuclear reactor cores for royal navy submarinesthe group continues to 
maintain a strong health safety and environmental record at these sites 
health and safety management 
the group experienced no work related fatalities during 2004 efforts continue to 
improve our performance on health and safety with a particular focus on noise 
induced hearing loss and manual handling 
environment 
businesses in the group are certiﬁed to the international environmental 
management systems standard iso 14001it is the group’s aim that any newly 
acquired business should achieve certiﬁcation within two years of acquisition 
during the year the group was placed ﬁrst in its business sector amongst 
those companies completing the 2003 business in the environment bie index 
of corporate environmental management and 32nd out of a total of 177 
participants 
the group continues to participate in the uk carbon dioxide emissions 
trading scheme and the chicago climate exchange ccx under these initiatives 
the group has accepted targets for the reduction of carbon dioxide emissions 
from its operations in the uk and north america setting and meeting 
challenging energy reduction targets will support the group’s involvement in this 
initiative during 2004 the group exceeded its obligations to reduce its emissions 
under the uk emissions trading scheme and was able to sell some emissions 
units further enhancing the cost saving beneﬁts of energy reduction 
in our latest environment report published in 2004 the group presented 
information r elating to steps being taken on reducing the overall environmental 
impact of its manufacturing operations worldwide our performance against 
targets between 1998­2003 is shown in the following table 
our targets target achieved 
reduce annual energy consumption by the end 10 25 
of 2003 relative to 1998 levels 
reduce greenhouse gas emissions b y the end 10 32 
of 2003 r elative to 1998 
reduce the use of solvents per year up to end 10 pa 32 pa 
of 2003 
implement strategies to phase out the use of implement some 
asbestos cadmium hexavalent chromium and solvents strategies implemented 
reduce water consumption by 2003 relative to 1998 10 33 
reduce the production of solid waste by the end 10 21 
of 2003 r elative to 1998 
increase the proportion of waste sent for recycling 50 50 
or recovery by the end of 2003 
the group has continued to make excellent progress in improving the 
environmental performance of its productsthis has been made possible by 
sustained investment in technology development over £3 billion has been 
invested in research and development during the last ﬁve years mainly to create 
new products with increased efﬁciency and reduced emissions during 2004 
rolls­royce was selected as one of the two engine suppliers for the boeing 787 
dreamlinerthe trent 1000 engine being developed for this aircraft will have 
outstanding en vironmental performance in line with or exceeding long­term 
published tar getsthe g roup c ontinues to be involved in a number of industry­ wide initiatives at national and international level aimed at improving the 
environmental performance of power systems 
rolls­royce group plc annual report 2004 37  report of the directors continued 
occupational health 
the group provides a preventative occupational health service to its employees 
which focuses on how individuals’ health can affect their work and how their 
work can affect their health 
occupational health continues to concentrate on four main areas of 
rehabilitation education health promotion and monitoringthe group’s objective 
is to provide a  ‘modern forward looking occupational health service recognised 
for delivering best practice’ the priority in rehabilitation is for early intervention 
and active management of cases a new training course for managers entitled 
care has been developed to assist managers in coping with absence and 
rehabilitation effectively health promotion campaigns delivered at major 
locations worldwide during 2004 included prostate cancer awareness a travel 
health week and a low back pain awareness weekthe group sets stringent 
occupational health related objectives and targets for reducing occupational 
disease and work related ill health a campaign to reduce noise induced hearing 
loss was launched in 2004 
the group’s approach to managing workplace pressure continues to evolve 
and is recognised as an example of best practice by the health and safety 
commission and in other external publications dr ian lawson the group’s chief 
medical ofﬁcer has recently been appointed president of the society of 
occupational m edicine 
employment policy 
the number of group employees at the end of the year was 35372 2003 35214 
the group’s employment policies and practices support overall business 
objectives b y motivating and de veloping employees to meet the requirements of 
the business and its customers policies continue to be reviewed and developed 
to support the changing needs and international nature of the business 
a strong emphasis is placed on effective worldwide employee 
communications and each business has its own programme of communication 
adapted to its particular needs 
the group consults with employees and employee representatives on a 
wide range of topics relating to its overall business objectives regular meetings 
are held in each business to discuss opportunities and issues of common interest 
in recent years senior employee representatives have worked closely with 
management to improve the quality of consultation and communication 
resulting in a jointly agreed framework a company and union forum is now held 
at least twice a year involving senior management and employee representatives 
from across the group followed by supporting communication in each business 
in 2004 senior managemen t representatives and a special negotiating body 
of employee representatives agreed to broaden this process through the 
introduction of a global council in 2005 covering all employees in the group 
the group is investing in new manufacturing facilities in derby hucknall and 
bristol in addition to further investment in the plant at barnoldswick a new facility 
at inchinnan in scotland ofﬁcially opened during 2004 following consultation 
with employee representatives agreement was reached on the introduction of 
modern working practices at all these locations plans have also been announced 
to invest in a new facility at east kilbride and to invest in the existing plant at 
indianapolis discussions are currently in progress with employee representatives 
at both lo cations on the ne w working practices required to support the business 
cases for investment 
the group has further developed its capability to support the redeployment 
training and c areer managemen t of employees through a network of 
resource centres 
the group has also helped to redeploy employees affected by restructuring and 
redundancy across the midlands through the involvement of more than 
30 organisations in a new partnership approach in 2004 the company was 
reaccredited under the investor in people standard 
the group has a strong equal opportunities policy and recognises the 
importance of developing a diverse and inclusive workforce it continues to 
support initiatives to attract more women and people from ethnic minorities to 
pursue careers in engineering a new global policy and framework for diversity 
and equality was developed and introduced in 2004 in consultation with 
employee representatives 
the group’s policy is to provide wherever possible employment training 
and development opportunities for disabled people it is also committed to 
supporting employees who become disabled and to helping disabled employees 
make the best possible use of their skills and potential 
the group is committed to encouraging employee share ownership 
all employees are regularly invited to participate in sharesave plans and have 
committed to save over £100 million to buy shares in the company in addition 
uk employees can receive part of their annual bonus in company shares and can 
make monthly share purchases from their gross salary in accordance with 
statutory arrangements 
learning and development 
the g roup c ontinues to invest in improving individual and business capability by 
offering development opportunities and training programmes for employees 
customers suppliers and people within the communities in which it operates 
the g roup has a strong tradition of succession planning dr iven by development 
cells in all businesses and functions during 2004 the leadership programmes 
which support career progression have been redesigned to reﬂect the evolving 
needs of the business 
in 2004 the group implemented the rolls­royce development system to 
standardise across its worldwide operations the processes for performance 
management succession management and individual and organisational 
development 
the group has continued to develop the rolls­royce learning system 
which sets frameworks for leadership continuing professional development and 
business and operations management working with academic partners across 
the world the group has a broad range of programmes that cover managerial 
professional technical and operating skills leadership and technical programmes 
have been designed to support the businesses in improving their processes as 
part of the g roup’s drive for process excellence 
in 2004 the group spent £30 million on the education and training of 
employees and recruited 170 graduates and 109 apprentices and technicians 
in addition there were 364 undergraduate students in the group for training 
periods of between two and 12 months at the end of 2004 there were 288 
graduates on formal training programmes and 330 apprentices and technicians 
worldwide 
working on local community projects forms a key part of development 
programmes for trainees and managersthese projects involve working with 
external partners in education the arts the environment and regeneration 
support for lo cal communities also includes free places on internal programmes 
and support for local schools 
the group continues to work closely with schools colleges and universities 
to promote science technology and enterprise its policy is to work with 
government local and national institutions and education establishments to 
widen studen ts’ experience of industry and promote careers in the aerospace 
marine and energy sectors in 2004 the group launched the rolls­royce science 
rolls­royce group plc annual report 2004 38  report of the directors continued 
prize to promote and reward teamwork in science teaching in schools and 
colleges in the uk and republic of ireland it also piloted proﬁtable pursuit a 
business simulation to stimulate enterprise education in schools 
the group supports a wide range of education projects and initiatives 
including open industry specialist schools education action zones science and 
engineering ambassadors‘pack to school’ for underprivileged children and 
building the innovation generation to promote engineering education in schools 
the group’s proﬁle as an employer of choice for graduates has further 
strengthened in the uk as evidenced by the results of a recent leading 
national survey 
the group has continued to support our supply chain and our customers 
with development programmes in the supply chain this has included training in 
people development and business improvement techniqueswe have supported 
our customers and related government departments with management and 
business education for example the group led an initiative to establish the british 
university of dubai which was opened in 2004through the uk governments 
chevening scheme the group also sponsored students from brazil china india 
indonesia malaysia and taiwan 
community investment 
charitable donations are an integral part of the group’s involvement in the 
community in 2004 the group’s total charitable donations amounted to £969000 
the group c ommunity investment committee was established in 2003 to oversee 
the implementation and operation of the group’s policy on charitable donations 
following a review of its status in 2005 it was decided that in future it should 
operate as an e xecutive committee reporting to the board 
the committee is supported by a series of national committees and 
operates within the following policy 
‘as a forward­looking innovative and global company rolls­royce group plc 
is committed to being a good corporate citizen in its operations throughout the 
worldthe group’s policy on donations is to direct its support primarily to causes 
with educational engineering and scientiﬁc objectives as well as to social 
objectives connected with the group’s business and place in the wider 
community’ 
during 2004 charitable donations in the uk amounted to £501000they 
included continuing support for greater bristol community foundation open 
industry and the institute of physics in response to the tsunami disaster in south 
east asia the group provided £250000 to the disaster appeal and committed a 
further £250000 in additional funding to match employee donations 
elsewhere the group has made charitable donations amounting to £468000 
in those countries in which it has a signiﬁcant presence in north america this 
included support for the work of united way habitat for humanity and the 
smithsonian national air and space museum in germany the group supported a 
range of charities including world children’s day in berlin in the nordic countries 
it supported a number of local sports and arts­based projects 
a list of the principal donations made in 2004 is available on written request 
to the company secretary 
in addition to our charitable donations contributions of £1317000 were 
made t o projects through the group’s corporate sponsorship committee 
individual business groups and through educ ational pr ogrammes 
the group has a long and successful history of community involvement 
as part of its commitment to being a good corporate citizen it assists the 
communities in which its businesses operate and its employees live and work 
employees are also encouraged to play their own role in the communitythis 
community involvement is designed to support the group’s values of reliability 
integrity and innovation and is directed towards supporting education the 
environment the arts and economic and social regeneration 
the group published its ﬁrst community report in 2004 which illustrated 
the range of support given to community based organisations and projects 
examples of activities in 2004 include 
–	 sponsoring viva an orchestra resident in derby through which the group 
supports concert giving and music education programmes in schools 
–	 continuing a uk­wide partnership with the prince’s trust to support its team 
and business start­up programmes 
–	 developing an environmental education project with the national forest 
company and 
–	 indianapolis­based employees supporting habitat for humanity by helping 
to construct a home for a local family 
the group also ﬁnances the administration of the payroll giving scheme for uk 
employees in 2004 the scheme helped employees to make donations of over 
£388000 t o over 200 charities of their choicethe scheme which was relaunched 
in 2004 has achie ved a level of uk employee participation of 16 per cent one of 
the highest in the country 
as part of c ommunity investment activities employees are encouraged to 
take up opportunities for development within local community based projects 
around our sites examples include 
–	 education business partnerships r unning succ essful men toring and literacy 
programmes for school pupils 
–	 participating in the uk’s science and engineering ambassadors scheme 
–	 trainees undertaking community projects as part of their training 
programmes 
–	 providing support to employees who are school governors and 
–	 working with organisations such as the prince’s trust and young enterprise 
to provide business mentors and advisers 
the group is able to offer support in­kind to local initiativesthis may include the 
provision of places on in­house training programmes the donation of surplus 
computer equipment and furniture and offering the free use of meeting rooms 
and premises 
the group is a member of business in the community and actively supports 
common purpose programmes across the ukthese two organisations aim to 
promote greater business awareness and involvement in wider community issues 
and encourage greater employee participation 
rolls­royce group plc annual report 2004 39  report of the directors continued 
going concern 
after making enquiries the directors have a reasonable expectation that the 
company has adequate resources to continue in operational existence for the 
foreseeable future for this reason they continue to adopt the going concern basis 
in preparing the ﬁnancial statements 
share capital 
the following have a notiﬁable interest in the company’s ordinary shares at 
february 9 2005 
 of issued ordinary 
share capital 
bmw ag 921 
authority to purchase own shares 
at the agm in 2004 the company was authorised by shareholders to purchase 
up to 167764988 of its own ordinary shares representing ten per cent of its 
issued ordinary share capital as at february 11 2004the company did not utilise 
this authority during 2004 
the authority for the company to purchase its own shares expires at the 
conclusion of the agm in 2005 and a resolution to renew it will be proposed at 
that meeting 
auditors 
a resolution t o reappoint the auditors kpmg audit plc and to authorise the 
directors to determine their remuneration will be proposed at the agm 
by order of the b oard 
charles blundell  company secretary 
february 9 2005 
rolls­royce group plc annual report 2004 40  directors’remuneration report 
information not subject to audit 
this report provides the information required by the directors’ remuneration 
report regulations 2002 the regulations it also describes how the principles of 
the combined code in relation to executive directors’ remuneration are applied 
by the companythe company conﬁrms that it complies with the requirements 
of the combined code 
the group operates in a highly competitive international market its business 
is complex technologically advanced and has long time horizonsthe 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 levelsthe board therefore believes that an effective 
remuneration strategy plays an essential part in the future success of the group 
by providing incentives which create a close identity of interest with shareholders 
a resolution will be put to shareholders at the annual general meeting 
agm on may 4 2005 inviting them to approve this report 
the remuneration committee 
the remuneration committee has responsibility for making recommendations to 
the board on the group’s policy towards executive remunerationthe committee 
determines on the board’s behalf the speciﬁc remuneration packages of the 
executive directors and a number of senior executives a copy of the committee’s 
terms of reference is available in the investors section on the group’s website at 
wwwrolls­roycecom 
the c ommittee c onsists exclusively of independent non­executive directors 
it was chaired by mr c g symon throughout the year and its other members 
were mr p j byrom and mr c­p forster sir john weston served as a member of 
the committ ee un til his r etirement from the b oard on december 1 2004 with 
effect from february 9 2005 the membership of the committee was changed 
and it currently comprises the hon a l bondurant mr p j byrom mr c­p forster 
and sir john taylor with mr c g symon continuing to serve as chairman of 
the committee 
in 2004 lord moore of lower marsh and sir john rose attended meetings by 
invitation but were not present during any discussion of their own emoluments 
the committee met on four occasions in 2004 and details of members’ 
attendance are set out on page 34 
advice to the remuneration committee 
the committee appoints its own consultant to provide it with independent 
advice during 2004 the committee’s consultant was mercer human resource 
consulting mercer mercer also provided advice to the group on insurance and 
pension ma tters 
the committee may also call for information and advice from other advisers 
inside and outside the group in 2004 lord moore and sir john rose made 
recommendations to the committee relating to the performance of their direct 
reports and on the appropriateness of particular remuneration proposals to the 
group’s needs internal support was provided primarily by the director – human 
resources mr j r rivers advised by deloitte  touche llp the company secretary 
mr c e blundell also provided support to the committee ad hoc advice has been 
provided by employees from human resources finance and business 
development when required 
the c ommittee also r eceived ad vice on remuneration matters from 
deloitte  touche llp and the company’s lawyers freshﬁelds bruckhaus deringer 
during 2004 deloitte  touche llp also advised the group on corporate tax 
transfer pricing and customs duties 
remuneration policy 
the policy framework 
the board has adopted on the recommendation of the committee a 
remuneration policy reﬂecting the following broad principles which it will 
continue to apply in 2005 
i the remuneration of executive directors and other senior executives should 
reﬂect their responsibilities and contain incentives to deliver the group’s 
performance objectives it must also be capable of attracting and retaining 
the individuals necessary for business success 
ii a signiﬁcant proportion of total remuneration should be based on group 
and individual performance both in the short and long term and 
iii the system of remuneration should establish a close identity of interest 
between senior executives and shareholders through measures such as 
encouraging the acquisition of a signiﬁcant shareholding in the company 
the policy takes into account pay and employment conditions elsewhere in 
the group 
the committee regularly reviews both the competitiveness of the group’s 
remuneration structure and its effectiveness in incentivising executives to 
enhance value for shareholders over the longer termit considers that a successful 
remuneration policy needs to be sufﬁciently ﬂexible to take account of future 
changes in the group’s business environment and in remuneration practice 
the main components of remuneration 
the main components of remuneration comprise base salary annual incentive 
arrangements long­t erm share based incentives and pension and life assurance 
beneﬁts executive directors and senior executives are also entitled to a company 
car or car allowance private medical insurance ﬁnancial counselling and in the 
case of mr j m guyette a housing allowance 
the committee considers that there should be a continuing emphasis on 
those elements of remuneration such as annual and long­term incentives which 
directly inﬂuence the performance of senior execut ives 
base salaries 
in determining the relative importance of these elements of remuneration the 
committee believes that base salaries should be set at levels required to recruit 
and retain high quality senior executives 
the committee believes that base salaries should be set with reference to 
the median­level of the relevant marketplace all salary increases must be justiﬁed 
on the basis of p erformance and are not automatic 
other beneﬁts are generally at the median of market practice 
annual incentives 
performance­related incentive plans should provide the opportunity of increasing 
total earnings to the upper quartile of the marketplace if performance justiﬁes it 
executive directors and senior executives participate in the annual performance 
related award plan apra under apra as operated in 2004 they were eligible 
for awards of up to 80 per cent of base salary on the achievement of 
predetermined targets in the case of the chief executive the maximum was 
100 per c ent it is possible for these maximum awards to be increased by 20 per 
cent to reﬂect exceptional personal performance apra awards do not form part 
of pensionable earningsthe apra performance targets set by the committee are 
based on the g roup’s annual operating plans for 2004 the measures for 
executive directors included underlying proﬁt average cash balance cash ﬂow 
and personal p erformance through speciﬁc personal objectives forty per cent of 
any apra bonus depends on personal performance against these speciﬁc 
rolls­royce group plc annual report 2004 41  directors’ remuneration report continued 
information not subject to audit 
objectives in the case of mr c h green who is a member of the board the award long­term incentives 
also reﬂected the performance of the business sector for which he is responsible in 2003 the committee completed a review of long­term incentive arrangements 
all executive directors therefore have a high proportion of their annual and concluded that the introduction of a new plan the rolls­royce group plc 
remuneration at risk for the chief executive his 100 per cent maximum bonus performance share plan psp would provide stronger incentives to improve 
opportunity means that up to 50 per cent of his combined basic pay and bonus company performance than executive share options shareholders gave their 
is directly related to annual ﬁnancial and personal performance in 2004 the level approval to the introduction of the psp at the 2004 agm in light of this the 
of achievement against the ﬁnancial measures was sufﬁcient to generate the committee does not intend to make further grants under the rolls­royce 1999 
maximum level of bonus for individual participants who also achieved all their executive share option plan 
personal objectives 
in 2005 to emphasise the importance of the corporate result the apra rolls­royce group plc performance share plan 
bonus pool available for distribution to all participants will be generated solely by the psp has the following principles 
the ﬁnancial performance of the group and no bonus will be paid to any – annual grants of awards in respect of a given number of shares to each 
participant unless the group achieves predetermined performance targetsthese participating executive 
continue to be based upon proﬁt and cash – a three­year performance period 
in previous years for participants employed within business sectors the pool – the number of shares released is dependent on the achievement of 
was generated partly by group performance and partly by the business sector pre­determined corporate performance criteria 
the performance of the business sector remains a factor in that it determines the – the release of the shares is contingent on the executive’s continued 
extent to which executives employed in a business sector have access to the pool employment within the group during the performance period except in 
created by corporate performance speciﬁed circumstances such as retirement or redundancy in these 
performance against personal objectives will also be a factor in determining circumstances or on a change of control shares can only be released 
total pa yments from the pool for all participants pro rata to service during the performance period and only to the extent 
there is a long­term incentive element in apra as one third of the value is justiﬁed by performance against the criteria 
delivered in the f orm of a def erred award in the company’s shares a participant – there is no r e­t esting of performance criteria and no automatic vesting in the 
who is granted a deferred share award under apra must normally continue to event of a take­over and 
hold these shares and remain an employee of the group for two years from the – executives are required to retain at least one half of any released shares after 
date of the a ward in order t o retain the full number of shares although shares will tax until the y retire from the g roup 
be released early in certain circumstances including retirement or redundancy the performance criteria established by the remuneration committee are 
the value of any deferred share awards is derived from the annual bonus intended to incentivise performance against three measures considered to be 
criteria and is therefore dependent on company and business ﬁnancial particularly important in generating shareholder valuethese measures are cash 
performance the release of deferred share awards is not dependent on the generation earnings and total shareholder returnthe performance criteria are 
achievement of any further performance conditionsthe deferred share element as follows 
operated for 2004 resulting in the share awards described on page 46the no shares will be released unless the growth in the company’s earnings per 
committee intends to maintain the deferred share element in respect of 2005 share eps as deﬁned by financial reporting standard 14 frs 14 exceeds the 
and future yearsthis arrangement provides a strong link between performance uk retail price index by three per cent per year over the performance period 
and remuneration promotes a culture of share ownership amongst the group’s the number of shares released if any will be determined in accordance 
senior managemen t and encourages decisions in the long­term interest of with cash flow per share cps targets which will not be adjusted for inﬂation 
shareholders 
the same targets set for apra are used for the all employee bonus scheme cps is deﬁned as 
which enables all employees worldwide to receive a bonus of up to two weeks’ cash ﬂow after interest taxation and capital expenditure but before cost of 
pay based on corporate and business performance business acquisitions or pr oceeds of disposals and dividends divided by the 
a deferred share incentive plan dsip was operated for 2002 which was weighted average number of shares in issue calculated in accordance with frs 14 
restricted to a small number of key executives including executive directors no shareholders have authorised the committee to set cps performance 
awards under the dsip were made in 2004 and it is not intended that the plan targets for future grants provided that in the committee’s reasonable judgement 
will be operated again dsip grants made in 2002 have not yet vested the targets are no less challenging in the light of the group’s business 
circumstances and its internal forecasts than the targets for the initial grant in 
2004 as approved by shareholders 
the following cps targets will apply to the grants to be made in 2005 
aggregate cps over percentage of 
three­year performance period maximum award released 
52p 30 
69p 100 
rolls­royce group plc annual report 2004 42  directors’ remuneration report continued 
information not subject to audit 
the committee believes that these cps targets are no less challenging than those 
applied in 2004 and that the performance necessary to achieve the awards 
towards the upper end of the range is particularly stretchingthey should not 
therefore be interpreted as providing guidance on the group’s expected 
performance over the relevant period 
intermediate levels of performance will attract pro rata releasesthe shares 
released will be determined by the total cps generated over the three­year 
period 
the company’s total shareholder return tsr over the performance period 
will be compared with the tsr of the companies constituting the ftse 100 index 
on the date of grantthis comparison will be carried out by an external 
independent agency if the company’s tsr exceeds the median of that group of 
companies the number of shares due to be released to an executive following 
achievement of the eps and cps targets will be increased by 25 per cent 
eps and tsr performance measures are calculated from a base year which is 
the year before grant 
it is intended that the chief executive will receive annual grants of shares 
with a market value at the time of grant of 100 per cent of his annual salary in 
accordance with the principles above exceptional performance could result in 
shares b eing released which are equivalent to 125 per cent of his salary at the 
time of gr ant in the case of other executives it is intended that the annual grant 
will be 666 per cent for executive directors and 50 per cent for other members of 
the g roup e xecutivethe psp permits grants up to 200 per cent of annual salary 
the psp is designed to provide awards which are at the median of the 
marketplace for uk companies of similar size and complexity to the company 
it will also b e applied t o other e xecutives b elow board level with awards being 
made on a pro rata basis 
in line with the committee’s established policy it is envisaged that existing 
issued shares will be used to satisfy awards but in order to provide ﬂexibility the 
psp rules permit the issue of new issue shares within standard limits 
executive share option plan 
following the introduction of the psp it is not intended to continue the practice 
of granting executive share options 
the exercise of options granted prior to the introduction of the psp is 
subject to a performance condition that the company’s growth in eps as deﬁned 
by frs 14 must exceed the uk retail price index by an average of three per cent 
per annum over a rolling three­year periodthese performance conditions apply 
to all the executive directors achievement of the eps target is reviewed annually 
by the c ommittee 
in 2001 in order to help meet a series of demanding challenges key 
members of the executive team including the executive directors received a 
larger than normal level of grant as described in the company’s 2001 annual 
report this award had more demanding performance criteria and personal share 
ownership requirements see pages 49 and 50 
long­term incentive plan 
the company has in place a long­term incentive plan the rolls­royce restricted 
share plan which was approved by shareholders in 1997there are no grants 
outstanding under this plan it is not in tended tha t further gr ants be made 
share retention policy 
the committee requires participants in the psp to retain at least one half of any 
shares released from the psp until their retirement except that shares may be sold 
within one year before the normal or agreed retirement date or on leaving for any 
other reason once a committed date has been agreedthis exception is intended 
to ensure that participants are not disadvantaged under capital gains tax rules on 
leaving employment 
all employee share plans 
the committee believes that share­based plans make a signiﬁcant contribution to 
the close involvement and interest of all employees in the group’s performance 
executive directors are eligible to participate in the company’s all­employee share 
schemes on the same terms as other employeesthere are three main elements 
to these arrangements 
i the sharesave scheme – a savings­related share option scheme available to 
all employeesthis scheme operates within speciﬁc tax legislation including 
a requirement to ﬁnance the exercise of the option using the proceeds of a 
monthly savings contractthe exercise of the option is not subject to the 
achievement of a performance target 
ii the  ‘free share’ element of the share incentive plan under which uk 
employees receive shares of up to the equivalent of one week’s pay as part 
of the company component of any bonus paid for 2004 and 
iii the  ‘partnership share’ element of the share incentive plan under which uk 
employees may make regular purchases of shares from pre­tax income 
international financial repor ting standards 
the committee intends to work closely with the audit committee to monitor and 
react appropriately to any impact which the introduction of international 
financial reporting standards may have on the performance measures under 
annual and long­term incentive plans 
service contracts 
the committee’s policy is that executive directors appointed to the board are 
offered notice periods of 12 monthsthe committee recognises that in the case of 
appointments to the board from outside the group it may be necessary to offer a 
longer initial notic e period which would subsequently reduce to 12 months after 
that initial period 
the committee has a deﬁned policy on compensation and mitigation to be 
applied in the event of a uk director’s contract being prematurely terminated in 
these cir cumstances steps are taken to ensure that poor performance is not 
rewardedwhen calculating termination payments the committee takes into 
account a range of factors such as age length of service contract and the 
director’s obligation to mitigate his or her own loss 
sir john rose and mr c h green have service agreements with 
rolls­royce plc dated december 4 1992 and march 1 1991 respectively 
rolls­royce plc has the discretion to terminate the service agreement by paying 
salary and the value of all other contractual beneﬁts in lieu of notice or pro rata in 
lieu of any unexpired period of notice as a result of the voluntary agreement of 
sir john rose and mr c h green with effect from january 1 2004 the notice 
required t o be given b y rolls­r oyce plc reduced from 24 months to 12 months 
the written notice required to be given by sir john rose and mr c h green 
remains six months in the event of the executives’ contracts being terminated by 
rolls­r oyce plc other than in accordance with the contracts’ terms they are 
entitled to receive a liquidated sum calculated as 12 months’ salary and beneﬁts 
performance related payments are not covered under this arrangement although 
an annual bonus may be paid if the executive is in post at the end of the year 
rolls­royce group plc annual report 2004 43  directors’ remuneration report continued 
information not subject to audit 
the executives are entitled to participate in the group’s performance related 
bonus arrangement with a maximum bonus of 100 per cent of basic salary in the 
case of sir john rose and 80 per cent of basic salary in the case of mr c h green 
one third of the value of any bonus is paid in the form of rolls­royce group plc 
sharesthe executives are eligible to participate in the psp and are entitled to 
membership of an appropriate group pension scheme and life assurance 
beneﬁtsthey are provided with a company car the group bearing maintenance 
and running costs or a monthly car allowance cover under the group’s private 
health scheme for the executive his wife and dependent children and 
ﬁnancial counselling 
mr j p chefﬁns has a service agreement with rolls­royce plc dated may 4 
2001 terminable by 12 months’ written notice by rolls­royce plc and six months’ 
written notice by mr j p chefﬁns eligibility for performance related bonus 
arrangements the psp  pensions and beneﬁts are identical to those described 
above for mr c h green 
mr j m guyette has a contract dated september 27 1997 with rolls­royce 
north america inc drawn up under the laws of the state of virginia it is for an 
indeﬁnite term and provides that on termination without cause he is entitled to 
12 months’ severance pay without mitigation and in addition appropriate 
relocation costs he is entitled to participate in the group’s performance related 
bonus ar rangement with a maximum bonus of 80 per cent of his salary one third 
of the value of any bonus is paid in the form of rolls­royce group plc shares 
he is also eligible t o participate in the psp  he is entitled to membership of an 
appropriate rolls­royce north america pension scheme mr guyette is provided 
with a company car the group bearing the maintenance and running costs or a 
monthly car allo wance housing allo wance and appropriate club membership 
fees cover under rolls­royce north america’s private health scheme for himself 
his wife and dependent children and ﬁnancial counselling 
dr m g j w howse’s service agreement with rolls­royce plc dated 
october 12 2001 terminated automatically on his 62nd birthday on june 20 2004 
dr howse who is now employed on a rolling contract terminable by 12 months’ 
written notice by rolls­royce plc and 12 months’ written notice by dr howse 
elected to receive retirement beneﬁts under the rolls­royce pension 
arrangements with effect from july 1 2004 and is not entitled to accrue any 
further pension under these arrangements details of the pension accrued 
between january 1 2004 and june 30 2004 are provided in the table on page 51 
eligibility for performance related bonus arrangements psp and other beneﬁts are 
identical to those described above for mr c h green 
mr a b shilston has a service agreement with rolls­royce plc dated 
november 5 2002 terminable by 12 months’ written notice by rolls­royce plc 
and six months’ written notice by mr a b shilston eligibility for performance 
related bonus arrangements psp and other beneﬁts are identical to those 
described for mr c h green above mr shilston participates in inland revenue 
approved pension arrangements in respect of salary up to the inland revenue 
cap currently £102000 and in the rolls­royce supplementary retirement 
scheme a money purchase funded unapproved retirement beneﬁt scheme 
in respect of the excess of salary over the cap 
executive directors’directorships of other companies 
during 2004 sir john rose was a non­executive director of eli lilly and company 
mr c h green was a non­executive director of baa plc until his resignation on 
july 31 2004 mr j m guyette was a director of the private bank and trust 
company of chicago illinois and of pricelinecom inc and mr a b shilston was a 
non­executive director of aea technology plc until his resignation on july 22 
2004 on november 8 2004 mr a b shilston was appointed as a non­executive 
director of cairn energy plc in all these cases the director retained the relevant 
fees from serving on the boards of these companies as shown in the table below 
external directorship fees 
payment 
received 
£000 
mr c h green 14 
mr j m guyette 
12 
32 
sir john rose 
134 
32 
mr a b shilston 23 
1 
sir john rose and mr j m guyette were paid in us dollars translated at 183  £1 
2 
in addition t o an annual f ee mr j m guyette received 8000 stock options in pricelinecom at an option 
price of us2822 per share he also received 2000 restricted sharesthe value of the shares will be 
determined at the market rate after vesting when they are exercised he also received 1500 stock 
options in private bank at an option price of us5378 per share 
3 
sir john rose elected to defer his payment and received 899 deferred shares in eli lilly and company 
at an a verage market price of us66358 per share 
4 
in addition to an annual fee sir john rose received stock options under the lilly stock plan for 
2800 shares at an option price of us7311 per share he also received 700 shares under the lilly 
directors’ deferral plan at a market price of us5659 per share which are payable after service on the 
board has ended 
non­e xecutive directors 
the non­executive chairman and the non­executive directors have letters of 
appointment rather than service contracts no compensation is payable to the 
chairman or t o any non­e xecutive director if the appointment is terminated early 
following a period of illness mr d e baird resigned as chairman with effect 
from june 21 2004 
lord moore of lower marsh served as acting chairman from december 17 
2003 during mr baird’s absence due to ill health and on june 21 2004 was 
appointed chairman of the company on an interim basis lord moore retired 
from the board on december 31 2004 he will continue to chair the trustees of 
the rolls­royce pension fund following his retirement from the board 
sir john weston retired as a non­executive director with effect from 
december 1 2004 
mr s m robertson was appointed non­executive chairman with effect from 
january 1 2005 he served as a non­executive director of the company from 
november 5 2004 to december 31 2004 prior to his appointment as chairman 
sir john taylor was appointed as a non­executive director with effect from 
november 5 2004 
mr i c conn was appointed as a non­executive director with effect from 
january 20 2005 
rolls­royce group plc annual report 2004 44  directors’ remuneration report continued 
information not subject to audit 
non­executive directors’fees 
the fees paid to non­executive directors see page 46 are determined by the 
board informed by independent market surveys in january 2005 a review was 
undertaken of the non­executive directors’ fees based on a specially 
commissioned independent market survey see page 46the non­executive 
chairman and the non­executive directors are not eligible to participate in any of 
the group’s share schemes performance pay 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 private purchases 
of shares in the company on the open market on a monthly basis 
performance graphs 
the company’s total shareholder return performance over the previous ﬁve 
years compared to a broad equity market index is shown in the graph below 
together with the performance of the company compared to the ftse 100the 
ftse 100 has been chosen as the comparator index because it contains a broad 
range of other leading uk listed companies 
rolls­royce group plc annual report 2004 45  directors’ remuneration report continued 
information subject to audit 
individual directors’emoluments and compensation 
the individual directors’ emoluments are analysed as follows 
2003 2004 2004 2003 
annual performance related award plan apra aggregate aggregate 
emoluments emoluments 
board and excluding excluding 
basic 
salaries 
basic 
salaries 
committee 
fees 
cash 
bonus 
deferred 
shares 
t otal 
apra 
1 
srs 
payments 
2 
taxable 
beneﬁts 
3 
pensions 
contributions 
4 
pensions 
contributions 
4 
£000 £000 £000 £000 £000 £000 £000 £000 £000 £000 
mr j p chefﬁns 390 412 — 224 112 336 — 24 772 693 
mr c h green 364 368 — 173 86 259 — 30 657 641 
mr j m guyette
5 
380 351 — 175 88 263 — 34 648 631 
dr m g j w howse 305 312 — 165 83 248 — 25 585 514 
sir john rose 627 645 — 421 210 631 — 9 1285 1042 
mr a b shilston 331 357 — 243 121 364 41 13 775 618 
mr d e baird
6 
— — 49 — — — — 5 54 253 
hon a l bondurant — — 36 — — — — — 36 9 
mr p j byrom — — 52 — — — — — 52 44 
mr c­p forster — — 40 — — — — — 40 9 
lord moore of lower marsh
7
— — 250 — — — — — 250 50 
sir robin nicholson — — 42 — — — — — 42 41 
mr s m r obertson 
8 
— — 5 — — — — — 5 — 
mr i c strachan — — 40 — — — — — 40 9 
mr c g s ymon — — 46 — — — — — 46 38 
sir john taylor 
9 
— — 5 — — — — — 5 — 
sir john weston
10 
— — 37 — — — — — 37 34 
sir ralph robins
11 
40 — — — — — — — — 40 
2437 2445 602 1401 700 2101 41 140 5329 4666 
1 
shares forming part of the bonus under apra have been valued at date of award 
2 
payments made to mr a b shilston in connection with his participation in the rolls­royce supplementary retirement scheme srs see pages 44 and 51 enabling him to discharge the income tax liability 
incurred by him on the contributions made by the group into the srs 
3 
taxable beneﬁts include the following company car or car allowance private medical insurance and ﬁnancial counselling and in the case of mr j m guyette a housing allowance and appropriate club 

membership fees

4 
details of the directors’pensions are set out on pages 50 and 51 
5 
mr j m guyette was paid in us dollars translated at 183  £1 
6 
mr d e baird resigned as a director and chairman with effect from june 21 2004 he waived the payment of the £257400 cash element of his annual fee with effect from march 10 2004 
7 
lord moore of lower marsh retired both as a non­executive director and chairman with effect from december 31 2004 
8 
mr s m robertson was appointed to the board as a non­executive director with effect from november 5 2004 and as non­executive chairman with effect from january 1 2005 
9 
sir j ohn  taylor was appointed to the board as a non­executive director with effect from november 5 2004 
10 
sir john weston retired as a non­executive director with effect from december 1 2004 
11 
sir ralph robins retired as a director with effect from january 31 2003 
non­executive directors’fees 
in 2004 each non­e xecutive director received an annual fee of £30000 in addition fees of £6000 per annum were paid to members of the audit remuneration and 
nominations committees with the chairmen of the audit and remuneration committees receiving a further £6000 per annum 
in february 2005 the board reviewed the fees payable to the non­executive directors in carrying out this review the board took account of the results of a 
specially commissioned independent market survey 
having taken in to account this external advice the board concluded that there was a strong case for increasing the non­executive directors’ fees to more 
competitive levels in order to reﬂect the increased responsibilities and time commitments which recent changes in corporate governance are imposing on all 
non­executive directors 
the board is therefore proposing that with effect from may 2005 the fees should be restructured so that in future a non­executive director would receive a fee of 
£50000 reﬂecting his or her membership of the board and of board committeesthe chairman of the audit committee would receive an additional fee of £15000 and 
the r emuneration committee chairman would receive an additional fee of £12000the senior independent director would also receive an additional fee of £5000 for 
carrying out this role 
the board will be inviting shareholders at the 2005 agm to approve a resolution to increase the maximum total amount payable to all the non­executive 
directors and the non­executive chairman from £600000 to £850000this increase will enable the fees payable to the non­executive directors to be increased to the 
levels descr ibed above as well as providing some limited headroom for further increases in fees that may be required in the future in response to movements in 
the mar ket 
rolls­royce group plc annual report 2004 46  directors’ remuneration report continued 
information not subject to audit 
non­executive directors’fees  continued 
the annual fee payable in 2004 to mr d e baird the former chairman was £325000 comprising a fee of £257400 and £67600 to cover the annualised cost of an 
apartment made available by the group for his use mr baird resigned as a director and as chairman with effect from june 21 2004 payment of the cash element of 
this fee was waived by mr baird with effect from march 10 2004 he therefore received a total cash fee for 2004 of £49000 
mr baird no longer had the use of the apartment following his resignation and the cost of the apartment up to the date of his resignation was £32000 with 
related expenses of £2000 being paid by the group 
lord moore of lower marsh who served as acting chairman during mr baird’s absence from december 17 2003 was appointed chairman on an interim basis 
with effect from june 21 2004 he was paid an annual fee of £250000 in 2004 inclusive of any board committee commitments or work undertaken in connection with 
his chairmanship of the rolls­royce pension fund he retired both as a director and as chairman with effect from december 31 2004 
mr s m robertson was appointed to the board as a non­executive director on november 5 2004 and as chairman with effect from january 1 2005 as chairman 
mr robertson will receive total emoluments in the form of an annual fee of £330000 
payments made to former directors of the company 
following his retirement on january 31 2003 sir ralph robins was retained on a consultancy contract until december 31 2004 to give support to the planning and 
organisation of the group’s centenary celebrations and for the centennial of powered ﬂight for these services he was paid a fee of £25000 in 2004 
directors’ share interests 
the directors including their immediate families at december 31 2004 had beneﬁcial interests in the ordinary shares and b shares
1 
of the company as shown in the 
following tables 
ordinary shares b shares 
january 1 changes during  december 31 january 1 changes during  december 31 
2004 2004 2004§ 2004 2004 2004§ 
mr j p chefﬁns 131572 33176 164748 — 123850 123850 
mr c h green 157793 39003 196796 — — — 
mr j m guyette 151525 29457 180982 — 7707750 7707750 
dr m g j w howse 72608 17480 90088 — 3696750 3696750 
sir john rose 246801 53817 300618 — — — 
mr a b s hilston 125000 2948 127948 — — — 
mr d e baird 
2 
357200 — 357200 — — — 
hon a l b ondurant 3400 — 3400 — — — 
mr p j byrom 142233 5877 148110 — — — 
mr c­p f orster — 1967 1967 — — — 
lord moore of lower marsh 
3 
72441 55434 127875 — — — 
sir robin nicholson 17036 401 17437 — — — 
mr s m robertson 
4 
— 20000 20000 — — — 
mr i c strachan 11500 — 11500 — — — 
mr c g symon 6292 259 6551 — — — 
sir j ohn taylor 
5 
— — — — — — 
sir j ohn weston 
6 
4661 1474 6135 — — — 
 or da te of appointment if later 
§ or date of resignation if earlier 
1 
non­cumulative redeemable convertible preference shares of 01p each 
2 
mr d e baird resigned as a non­executive director and chairman with effect from june 21 2004 
3 
lord moore of lower marsh retired as a non­executive director and chairman with effect from december 31 2004 
4 
mr s m robertson was appointed as a non­executive director with effect from november 5 2004 and as chairman with effect from january 1 2005 
5 
sir john taylor was appointed as a non­executive director with effect from november 5 2004 
6 
sir john weston retired as a non­executive director with effect from december 1 2004 
mr j p c hefﬁns mr j m g uyette and dr m g j w howse converted their b share holdings into 50 3083 and 1478 ordinary shares respectively on january 5 2005

mr c­p forster purchased 390 shares on january 7 2005 and 371 shares on february 7 2005 under arrangements made for non­executive directors to purchase shares on a monthly basis using a percentage of their

after tax fees on january 5 2005 pursuant to elections submitted mr j p chefﬁns mr c h green mr j m guyette dr m g j w howse sir john rose mr a b shilston hon a l bondurant mr p j byrom mr c­p forster

sir robin nicholson and mr c g symon received 2095 2503 2302 1146 3824 1627 68 1885 10 222 and 84 ordinary shares respectively following the conversion of b shares otherwise there have been no

changes in the directors’interests between december 31 2004 and february 9 2005

in addition the dir ectors are for companies act purposes technically interested in the 410747 rolls­royce group plc shares held by the rolls­royce qualifying 
employee share trust and the 437130 rolls­royce group plc shares held by the rolls­royce employee share trust 
rolls­royce group plc annual report 2004 47  directors’ remuneration report continued 
information not subject to audit 
shares held in trust 
shares held in trust under the annual proﬁt sharing share scheme
1 
ordinary shares b shares 
2 
january 1 changes during  december 31 january 1 changes during  december 31 
2004 2004 2004 2004 2004 2004 
mr j p chefﬁns
3 4 
6307 2477 3830 — 191500 191500 
mr c h green 
4 
6412 2752 3660 — — — 
dr m g j w howse
4 
3905 1290 2615 — — — 
sir john rose
4 
8016 3655 4361 — — — 
shares held in trust under the share incentive plan
5 
ordinary shares b shares 
2 
january 1 
2004 
changes during 
2004 
december 31 
2004 
january 1 
2004 
changes during 
2004 
december 31 
2004 
mr c h green 
67 
1400 696 2096 — — — 
sir john rose
67 
1400 696 2096 — — — 
mr a b shilston
67 
966 686 1652 — — — 
shares held in trust under the share bonus scheme
8 
ordinary shares b shares 
2 
january 1 changes during  december 31 january 1 changes during  december 31 
2004 2004 2004 2004 2004 
mr j p c hefﬁns
9 10 
3614 1297 4911 — 180700 180700 
mr c h green 
10 
3614 1382 4996 — — — 
dr m g j w howse
10 
3614 85 3699 — — — 
sir john rose
10 
3614 1382 4996 — — — 
mr a b s hilston
10 
1011 1321 2332 — — — 
1 
under the proﬁt sharing share scheme shares vest after three years 
2 
non­cumulativ e redeemable c onvertible pr eference shares of 01p each 
3 
on j anuary 5 2005 pursuant to an election submitted mr j p chefﬁns converted his b share holding and received 76 ordinary shares 
4 
on january 5 2005 pursuant to elections submitted mr j p chefﬁns mr c h green dr m g j w howse and sir john rose received 49 46 33 and 55 ordinary shares respectively following the conversion 
of b s hares 
5 
under the share incentive plan shares vest on the ﬁfth anniversary of each monthly purchase 
6 
on january 5 2005 pursuant to elections submitted mr c h green sir john rose and mr a b shilston received 25 25 and 19 ordinary shares respectively following the conversion of b shares 
7 
mr c h green sir john rose and mr a b shilston purchased 50 and 47 shares each respectively on january 7 2005 and february 7 2005 under the inland revenue approved share incentive plan 
8 
under the share bonus scheme shares vest after ﬁve years 
9 
on january 5 2005 pursuant to an election submitted mr j p chefﬁns converted his b share holding and received 72 ordinary shares 
10 
on january 5 2005 pursuant to elections submitted mr j p chefﬁns mr c h green mr m g j w howse sir john rose and mr a b shilston received 62 63 47 63 and 30 ordinary shares respectively 
following the conversion of b shares 
rolls­royce group plc annual report 2004 48 
2004  directors’ remuneration report continued 
information subject to audit 
the directors at december 31 2004 held the following options under the rolls­royce plc executive share option scheme the rolls­royce 1999 executive share 
option plan and the rolls­royce international sharesave plan 
share options 
market price aggregate aggregate 
january 1 granted lapsed exercised december 31 exercise at date gains 2004 gains 2003 exercisable 
2004 in 2004 in 2004 in 2004 2004 
1 
price exercised £000 £000 dates 
mr j p chefﬁns 72250 72250 176p 2005 
133849 133849 194p 2005­2010 
173612 173612 216p 2005­2011 
694445 694445 
2 
216p 2005­2011 
4398 4398 
3 
108p 2005 
398936 398936 188p 2005­2012 
499189 499189 77p 2006­2013 
1976679 1976679 172p 
4 
mr c h green 67250 67250 — 176p 23250p 38 2005 
4756 4756 
3 
205p 2005 
4053 4053 
3 
194p 2007 
154441 154441 194p 2005­2010 
162038 162038 216p 2005­2011 
648149 648149 
2 
216p 2005­2011 
551 551
3 
108p 2007 
279255 279255 188p 2005­2012 
465910 465910 77p 2006­2013 
3103 3103 
3 
141p 2006­2007 
1789506 67250 1722256 172p 
4 
mr j m g uyette 114581 114581 269p 2005­2009 
167799 167799 194p 2005­2010 
179161 179161 216p 2005­2011 
716641 716641
2 
216p 2005­2011 
4398 4398 
3 
108p 2005 
450140 450140 188p 2005­2012 
506084 506084 77p 2006­2013 
3122 3122 
3 
141p 2006­2007 
2141926 2141926 178p 
4 
dr m g j w howse 41250 41250 — 176p 23375p 24 2005 
63836 63836 194p 2005­2010 
69445 69445 216p 2005­2011 
138889 138889 
2 
216p 2005­2011 
1407 1407 
3 
108p 2005 
199468 199468 188p 2005­2012 
514295 41250 473045  201p
4 
sir john rose 116750 116750 176p 2005 
283141 283141 194p 2005­2010 
254630 254630 216p 2005­2011 
1018519 1018519 
2 
216p 2005­2011 
7662 7662
3 
108p 2007 
638298 638298 188p 2005­2012 
798702 798702 77p 2006­2013 
2894 2894
3 
141p 2006­2007 
3120596 3120596 171p 
4 
rolls­royce group plc annual report 2004 49  directors’ remuneration report continued 
information subject to audit 
share options continued 
january 1 
2004 
granted 
in 2004 
lapsed 
in 2004 
exercised 
in 2004 
december 31 
2004 
1 
exercise 
price 
market price 
at date 
exercised 
aggregate 
gains 2004 
£000 
aggregate 
gains 2003 
£000 
exercisable 
dates 
mr a b shilston 633117 633117 77p 2006­2013 
633117 633117 77p 
 performance target achieved option capable of exercise all other executive share options listed above are subject to stringent targets which have yet to be achieved 
1 
unless otherwise indicated all the above options were granted under the rolls­royce plc executive share option scheme and the rolls­royce 1999 executive share option plan and are subject to the 
achievement of performance targets see page 43 all options were granted at the market value on the date of issue and no discount was applied no options were varied during the year and no consideration 
was paid for the grant of options the market price of the company’s ordinary shares ranged between 1675p and 269p during 2004the closing price on december 31 2004 was 247p 
2 
supplementary options – vesting of these options is subject to the attainment of signiﬁcant personal share holding targets and the requirement that growth in eps exceeds an average of six per cent year on 
year as well as exceeding the uk rpi by three per cent per annum over a rolling three­year periodthe increases are measured from the year 2000 or the base year of the rolling three­year period whichever is the 
more stringent 
3 
sharesave schemes 
4 
weighted average exercise price of december 31 2004 balance 
long­term incentive awards 
the directors as at december 31 2004 had the following share awards in the annual performance related award plan 
shares held in trust under the annual performance related award plan
1 
shares held in trust under the deferred share incentive plan
2 
january 1 vested during granted during  december 31 january 1 vested during  granted during  december 31 
2004 2004 2004 2004 2004 2004 2004 2004 
mr j p c hefﬁns 118426 41007 42252 119671 171928 — — 171928 
mr c h green 102186 19137 37934 120983 160467 — — 160467 
mr j m g uyette 124757 46270 28253 106740 174303 — — 174303 
dr m g j w howse 82373 21949 27824 88248 — — — — 
sir john rose 189479 65610 62632 186501 275086 — — 275086 
mr a b s hilston — — 36824 36824 — — — — 
1 
under the annual performance related award plan shares vest after two years see page 41 shares went in to trust in 2002 2003 and 2004 at prices of £1829 £07646 and £220 respectively at the date of this 
report the amounts stated in the emoluments table on page 46 representing apra entitlements had not yet been applied by the trustee to purchase shares an investment is expected to be made by 
march 31 2005 when the trustee will procure the acquisition of the required number of shares at the prevailing market price 
2 
under the deferred share incentive plan shares vest after three years shares went into trust in 2003 at a price of £07646 
conditional awards granted under the rolls­royce group plc performance share plan psp to executive directors granted in 2004 are set out below 
shares released will be dependent upon certain performance criteria being achieved over a three­year performance period see page 42 
psp 
conditional conditional market price 
share awards shares awarded at date 
january 1 2004 during 2004 performance period of grant 
mr j p c hefﬁns — 112777 jan 1 2004 to dec 31 2006 23292p 
mr c h green — 105255 jan 1 2004 to dec 31 2006 23292p 
mr j m guyette — 101654 jan 1 2004 to dec 31 2006 23292p 
dr m g j w howse — 88017 jan 1 2004 to dec 31 2006 23292p 
sir john r ose — 270640 jan 1 2004 to dec 31 2006 23292p 
mr a b shilston — 95352 jan 1 2004 to dec 31 2006 23292p 
the number of shares released on the achievement of the eps and cps targets will be increased by 25 per cent if the total shareholder return exceeds the median for 
ftse 100 companies over the three­year performance period 
pensions 
mr j m guyette participates in pension plans sponsored by rolls­royce north america inc 
all other executive directors under their normal retirement age are members of the group’s uk pension schemesthese schemes are funded and approved 
deﬁned beneﬁt pension schemes providing at retirement a pension of up to two thirds of ﬁnal remuneration subject to inland revenue limits 
there is no in tention t o compensate directors or other senior executives for any additional tax they may be required to pay as a result of the new inland revenue 
pensions regulations which are to be introduced with effect from april 2006 
rolls­royce group plc annual report 2004 50  directors’ remuneration report continued 
information subject to audit 
pensions continued 
details of the pension beneﬁts which accrued over the year in the group’s approved uk deﬁned beneﬁt pension schemes are given below 
7 
 
increase in 
increase in  total accrued  transfer value as  transfer value 
accrued pension  pension  transfer value  at dec 31 2003 over 2004 
during the  entitlement at of accrued  of accrued  net of the 
year ended 
dec 31 2004
1 
the year ended 
dec 31 2004
2 
pension as at 
dec 31 2004 
3 
pension 
at that date 
3 
member’s own 
contributions
4 
£000pa £000pa £000 £000 £000 
mr j p chefﬁns 43 34  347 5091 4302 764 504 
mr c h green 36 28 309 4505 3870 614 411 
dr m g j w howse 
5 
37 31 264 4182 3239 934 495 
sir john rose 49 39 384 5683 4944 700 377 
mr a b shilston
6 
2 2 4 64 28 91 86 
details of the retirement beneﬁts which accrued over the year in the deﬁned beneﬁt plans sponsored by rolls­royce north america inc are given below 
increase in  total accrued  transfer value as  increase in 
accrued retirement  retirement  transfer value at dec 31 2003  transfer value 
lump sum lump sum of accrued of accrued over 2004 
during the  entitlement at retirement retirement net of the 
year ended 
dec 31 2004
1 
the year ended 
dec 31 2004
9 
lump sum as at 
dec 31 2004 
10 
lump sum 
at that date 
10 
member’s own 
contributions
4 
£000pa £000pa £000 £000 £000 
mr j m guyette 
811 
56 48 262 262 206 320 312 
1 
the ﬁgure in brackets is the increase in pensionretirement lump sum during the year ended december 31 2004 but in this case excluding the effect of inﬂation 
2 
the pension entitlement shown is that which would be paid annually on retirement based on service to the end of the year 
3 
the transfer values stated represent liabilities of the rolls­royce sponsored pension schemes and not sums paid to the individuals the transfer values have been calculated on the basis of actuarial advice in 
accordance with actuarial guidance note gn11 gn11 gn11 covers individual transfer calculations and the above ﬁgures have been calculated using assumptions certiﬁed by the actuary as being consistent 
with gn11 transfer values calculated on this basis will vary up or down from one year to the next due to changes in ﬁnancial conditions principally long­term interest rates from which the actuary derives the 
assumptions used t o place a capital value on the pension entitlementwhilst ﬂuctuating up or down in individual years transfer values generally trend upwards over time as individuals complete more service 
and become older age is an important factor because shortening the period to retirement signiﬁcantly increases the capital value of any given amount of pension part of the increase in transfer values over 2004 
is attributable to falls in the market interest rates on which the transfer value calculations are based it is also important to view the increase in transfer values quoted above in the context of transfer values having 
fallen during 2003 transfer values as a t december 31 2002 can be compared to transfer values as at december 31 2004 for mr j p chefﬁns mr c h green and sir john rose as follows 
dec 31 2002  dec 31 2004  increase 
£000 £000 over two years 
mr j p chefﬁns 4483 5091 136 
mr c h green 4233 4505 65 
sir john rose 5268 5683 78 
dr m g j w howse commenced drawing his pension from july 1 2004 see note 5 below in calculating transfer values in line with gn11 there is a change in methodology in the approach to valuing beneﬁts 
before and after they come into paymentthis change in actuarial method explains why the increase in transfer value during 2004 is larger for dr m g j w howse than for other directors 
4 
the ﬁgure in brackets is the transfer value of the increase in pensionretirement lump sum during the year ended december 31 2004 excluding the effect of inﬂation and net of the member’s own contributions 
5 
dr m g j w howse attained normal retirement age on july 1 2004 and began receiving his pension beneﬁts although he remains an executive directorthe increase in accrued pension shown for

dr m g j w howse therefore relates to the pension accrued over the ﬁrst six months of the year only

6 
the group operates the rolls­royce supplementary retirement scheme srsthe purpose of the scheme is to fund pension provision above the pensionable earnings cap which was imposed on approved 
pension schemes under the 1989 finance act membership of the scheme is restricted to executive directors and to a limited number of senior executivesthe members of the scheme include mr a b shilston he 
joined the g roup af ter the in troduction of the earnings cap and his terms and conditions on joining the group included a commitment to provide pension and life cover based on total salary in line with other 
directors and senior executives employer contributions to this plan during 2004 have been added to the increase in transfer value over 2004 for the approved deﬁned beneﬁt plans and are therefore included in 
the ﬁgures shown in the right hand column of the ﬁrst table in addition the employer has paid £41000 to mr a b shilston directly in order to meet the income tax liability that he will incur on these employer 
contributions to the unapproved plan 
7 
members of the schemes have the option to pay additional voluntary contributions neither the contributions nor the resulting beneﬁts are included in the above table 
8 
beneﬁts are translated at us183£1 
9 
the lump sum entitlement shown is that which would be paid on immediate retirement based on service to the end of the year 
10 
the transfer values have been calculated on the basis of actuarial advice 
11 
mr j m guyette is a member of two deﬁned beneﬁt plans in the usa one qualiﬁed and one non­qualiﬁed he accrues a retirement lump sum beneﬁt in both of these plans which as cash balance arrangements 
operate on the same basis as deﬁned c ontribution except a guaranteed minimum rate of interest of four per cent is applied to investmentsthe aggregate value of the retirement lump sums accrued in these 
two plans and the transfer values of these beneﬁts are shown in the second table in addition mr j m guyette is a member of two 401k deﬁned beneﬁt savings plans in the usa one qualiﬁed and one non­
qualiﬁed to which both he and his employer rolls­royce north america inc contributethe aggregate employer contribution invested in the cash balance and 401k plans each year is calculated with reference 
to taxable basic and annual inc entive compensation to reﬂect market practice in the usa however this is capped at no more than 26 per cent of basic salary mr j m guyette is also a member of an unfunded 
non­qualiﬁed deferred compensation plan in the usa to which his employer makes notional contributions calculated with reference to his basic salary employer contributions to the 401k and deferred 
compensation plans during 2004 have been added to the increase in transfer value over 2004 for the deﬁned beneﬁt plans and are therefore included in the ﬁgures shown in the right hand column of the 
second table 
approval of the directors’remuneration report 
the dir ectors’ remuneration report above was approved by the board of directors on february 9 2005 
carl g symon 
chairman of the remuneration committee 
rolls­royce group plc annual report 2004 51  group proﬁt and loss account 
for the year ended december 31 2004 
2004 2003 
notes £m £m 
turnover group and share of joint ventures 6229 6038 
sales to joint ventures 965 936 
less share of joint ventures’ turnover 1255 1329 
group turnover 2 5939 5645 
cost of sales 4812 4714 
gross proﬁt 1127 931 
other operating income 3 73 153 
commercial marketing and product support costs 302 292 
general and administrative costs 296 288 
research and development net 282 281 
group operating proﬁt 320 223 
share of operating proﬁt of joint ventures 49 52 
proﬁt on sale or termination of businesses 31 9 6 
loss on sale of ﬁxed assets 2 11 
proﬁt on ordinary activities before interest 2 376 270 
net interest payable – group 4 48 66 
– joint ventures 22 24 
proﬁt on ordinary activities before taxation 3 306 180 
taxation 5 101 64 
proﬁt on ordinary activities after taxation 205 116 
equity minority interests in subsidiary undertakings 1 — 
proﬁt attributable to ordinary shareholders 204 116 
dividends 6 — 53 
transferred to reserves 26 204 63 
research and development gross 601 619 
payments to shareholders see accounting policies – b shares 140 137 
earnings per ordinary share 7 
underlying 1450p 1220p 
basic 1207p 704p 
diluted 1164p 694p 
as permitted by the companies act 1985 a separate proﬁt and loss account for the company has not been included in these ﬁnancial statements

balance sheet and cash ﬂow 2003 comparatives have been restated to reﬂect uitf 38 ‘accounting for esop trusts’ see note 1

there have been no material acquisitions or material discontinued operations in 2004 or 2003

rollsroyce group plc annual report 2004 52  balance sheets 
at december 31 2004 
group company 
restated 
2004 2003 2004 2003 
notes £m £m £m £m 
fixed assets 
intangible assets 9 911 863 — — 
tangible assets 10 1626 1750 — — 
investments – subsidiary undertakings 11 — — 2198 2153 
– joint ventures 12 199 202 — — 
share of gross assets 1137 1113 
share of gross liabilities 943 916 
goodwill 5 5 
– other 13 57 63 — — 
2793 2878 2198 2153 
current assets 
stocks 14 1081 962 — — 
debtors – amounts falling due within one year 15 1357 1497 501 1 
– amounts falling due after one year 16 1053 1109 — — 
shortterm deposits and investments 17 730 174 — — 
cash at bank and in hand 758 794 — — 
4979 4536 501 1 
creditors – amounts falling due within one year 
borrowings 18 204 94 — — 
other creditors 19 2570 2759 — 53 
net current assets 2205 1683 501 52 
total assets less current liabilities 4998 4561 2699 2101 
creditors – amounts falling due after one year 
borrowings 20 1364 1197 — — 
other creditors 21 540 426 — — 
provisions for liabilities and charges 22 787 795 — — 
2307 2143 2699 2101 
capital and reserves 
calledup share capital 25 346 333 346 333 
share premium account 26 4 1 4 1 
revaluation reserve 26 89 96 — — 
merger reserve 26 3 3 918 1004 
capital redemption reserve 26 74 — 74 — 
proﬁt and loss account 26 1787 1707 1357 763 
shareholders’ funds 
1 
2303 2140 2699 2101 
equity minority interests in subsidiary undertakings 4 3 — — 
2307 2143 2699 2101 
equity shareholders’ funds group £2298m 2003 £2140m company £2694m 2003 £2101m nonequity shareholders’ funds group £5m 2003 £nil company £5m 2003 £nil 
the ﬁnancial statements on pages 52 to 85 were approved by the board on february 9 2005 and signed on its behalf by 
simon robertson chairman andrew shilston finance director 
rollsroyce group plc annual report 2004 
1 
53  group cash ﬂow statement 
for the year ended december 31 2004 
restated 
2004 2003 
£m £m 
net cash inﬂow from operating activities a 640 673 
dividends received from joint ventures 15 11 
returns on investments and servicing of ﬁnance b 48 56 
taxation paid 84 43 
capital expenditure and ﬁnancial investment c 219 198 
acquisitions and disposals d 14 16 
equity dividends paid 33 88 
cash inﬂow before use of liquid resources and ﬁnancing 285 283 
management of liquid resources e 558 90 
financing f 274 17 
increase in cash in the year 1 176 
reconciliation of net cash ﬂow to movement in net funds 
increase in cash 1 176 
cash outﬂow from increase in liquid resources 558 90 
cash inﬂowoutﬂow from increasedecrease in borrowings 299 20 
change in net funds resulting from cash ﬂows 260 286 
borrowings of businesses disposed — 33 
finance lease additions — 10 
zerocoupon bonds 20052007 90 interest accretion 4 4 
exchange adjustments 13 33 
movement in net funds 243 272 
net debt at january 1 323 595 
net debt at december 31 80 323 
at other at 
january 1 exchange noncash december 31 
analysis of net debt 
2004 
£m 
cash ﬂow 
£m 
adjustments 
£m 
changes 
£m 
2004 
£m 
cash at bank and in hand 794 6 30 — 758 
overdrafts 20 7 — — 13 
shortterm deposits and investments 174 558 2 — 730 
other borrowings due within one year 59 57 1 178 179 
borrowings due after one year 1128 408 18 174 1344 
finance leases 84 52 — — 32 
323 260 13 4 80 
rollsroyce group plc annual report 2004 54  group cash ﬂow statement continued 
for the year ended december 31 2004 
restated 
2004 2003 
£m £m 
reconciliation of operating proﬁt to operating cash ﬂows 
operating proﬁt 320 223 
amortisation of intangible assets note 9 62 63 
depreciation of tangible ﬁxed assets note 10 223 223 
increase in provisions for liabilities and charges 7 3 
increasedecrease in stocks 121 191 
decreaseincrease in debtors 180 188 
decreaseincrease in creditors 31 158 
a net cash inﬂow from operating activities 640 673 
returns on investments and servicing of ﬁnance 
interest received 58 28 
interest paid 103 79 
interest element of ﬁnance lease payments 3 5 
b net cash outﬂow for returns on investments and servicing of ﬁnance 48 56 
capital expenditure and ﬁnancial investment 
disposals of unlisted investments — 5 
additions to intangible assets 110 37 
purchases of tangible ﬁxed assets 175 182 
disposals of tangible ﬁxed assets 66 16 
c net cash outﬂow for capital expenditure and ﬁnancial investment 219 198 
acquisitions and disposals 
acquisitions of businesses — 9 
disposals of businesses note 31 16 1 
investments in joint ventures 2 8 
d net cash inﬂowoutﬂow for acquisitions and disposals 14 16 
management of liquid resources 
increase in shortterm deposits 561 91 
decrease in government securities and corporate bonds 3 1 
e net cash outﬂow from management of liquid resources 558 90 
financing 
borrowings due within one year – repayment of loans 57 245 
– increase in loans — 2 
borrowings due after one year – repayment of loans 92 58 
– increase in loans 500 296 
capital element of ﬁnance lease payments 52 15 
net cash inﬂowoutﬂow from increasedecrease in borrowings 299 20 
issue of ordinary shares 4 1 
purchasedisposal of own shares 2 2 
redemption of b shares 27 — 
f net cash inﬂowoutﬂow from ﬁnancing 274 17 
rollsroyce group plc annual report 2004 55  group statement of total recognised gains and losses 
for the year ended december 31 2004 
2004 
£m 
restated 
2003 
£m 
proﬁt attributable to the shareholders of rollsroyce group plc 204 116 
exchange adjustments on foreign currency net investments 38 3 
total recognised gains for the year 166 113 
group historical cost proﬁts and losses 
for the year ended december 31 2004 
restated 
2004 2003 
£m £m 
proﬁt on ordinary activities before taxation 306 180 
difference between the historical cost depreciation charge and the actual depreciation charge for the year calculated on the revalued amount 7 4 
historical cost proﬁt on ordinary activities before taxation 313 184 
historical cost transfer to reserves 211 67 
reconciliations of movements in shareholders’ funds 
for the year ended december 31 2004 
group company 
restated 
2004 2003 2004 2003 
£m £m £m £m 
at january 1 as previously reported 2141 2035 2101 — 
prior year adjustment see accounting policies page 57 1 3 — — 
at january 1 restated 2140 2032 2101 — 
group reorganisation — — — 2153 
total recognised gains for the year 166 113 601 — 
ordinary dividends net of scrip dividend adjustments 7 8 7 53 
new ordinary share capital issued net of expenses 4 1 4 1 
goodwill transferred to the proﬁt and loss account in respect of disposals of businesses 2 — — — 
relating to own shares 2 2 — — 
at december 31 2303 2140 2699 2101 
rollsroyce group plc annual report 2004 56  notes to the ﬁnancial statements 
1 accounting policies 
basis of accounting 
the ﬁnancial statements have been prepared in accordance with applicable 
accounting standards on the historical cost basis modiﬁed to include the 
revaluation of land and buildings 
the group has adopted uitf 38 ‘accounting for esop trusts’  under which 
own shares have been reclassiﬁed as a deduction from shareholders funds the 
effect has been to reduce ﬁxed asset investments by £2m 2003 £1m 
basis of consolidation 
the group ﬁnancial statements include the ﬁnancial statements of the company 
and all of its subsidiary undertakings made up to december 31 together with the 
group’s share of the results up to december 31 of 
i joint ventures 
a joint venture 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 the results of joint ventures are 
accounted for using the gross equity method of accounting 
ii joint arrangements that are not entities 
the group has certain contractual arrangements with other participants to 
engage in joint activities that do not create an entity carrying on a trade or 
business of its ownthe group includes its share of assets liabilities and cash 
ﬂows in such joint arrangements measured in accordance with the terms of 
each arrangement which is usually pro rata to the group’s risk interest in the 
joint arrangement 
any subsidiary undertakings joint ventures and joint arrangements that are not 
entities sold or acquired during the year are included up to or from the dates of 
change of control 
some small adjustments have been made to comparative ﬁgures to put 
them on a consistent basis with the current year 
purchased goodwill 
goodwill represents the excess of the fair value of the purchase consideration for 
shares in subsidiary undertakings and joint ventures over the fair value to the 
group of the net assets acquired 
i to december 31 1997 goodwill was written off to reserves in the year of 
acquisitionthe proﬁt or loss on the disposal of a business acquired before 
december 31 1997 takes into account the attributable value of purchased 
goodwill relating to that business 
ii from january 1 1998 goodwill has been recognised within ﬁxed assets in 
the year in which it arises and amortised on a straight line basis over its 
useful economic life up to a maximum of 20 years 
revenue recognition 
revenues comprise sales to outside customers after discounts and excluding 
value added tax 
sales of products 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 
sales of services and longterm contracts are recognised when the outcome 
of the transaction can be reliably estimated revenue is recognised by reference 
to the stage of completion based on services performed to date as a percentage 
of the total contractual obligation 
linked sales of product and services are treated as a single longterm 
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 form a single project with an overall proﬁt margin revenue 
is recognised on the same basis as for other longterm contracts as 
described above 
provided that the outcome of longterm contracts can be assessed with 
reasonable certainty the attributable proﬁt recognised on such contracts is based 
on stage of completion and the overall contract proﬁtability after including an 
appropriate risk factor which is progressively reduced over the life of the contract 
full provision is made for any estimated losses to completion of contracts 
having regard to the overall substance of the arrangements including if 
appropriate related commitments and undertakings given by customers 
progress payments received when greater than recorded turnover 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 creditors the amount by which recorded turnover of 
longterm contracts is in excess of payments on account is classiﬁed as ‘amounts 
recoverable on contracts’ and is separately disclosed within debtors 
stock 
stock and work in progress are valued at the lower of cost and net realisable 
value 
risk and revenue sharing partnerships 
from time to time the group enters into arrangements with partners who in 
return for a share in future programme revenues or proﬁts make cash payments 
which are not refundable except under certain remote circumstances cash 
sums received which reimburse the group for past expenditure are credited to 
other operating income the arrangements may also require partners to 
undertake development work andor supply components at their own expense 
for use in the programme no accounting entries are recorded where partners 
undertake such development work or where programme components are 
supplied by partners because no obligation arises unless and until programme 
sales are made instead payments to partners for their share in the programme 
are charged to cost of sales as programme revenues arise 
research and development 
the charge to the proﬁt and loss account consists of research and development 
expenditure incurred in the year excluding known recoverable costs on contracts 
contributions to shared engineering programmes and application engineering 
application engineering expenditure incurred in the adaptation of existing 
technology to new products is capitalised and amortised over the programme 
life up to a maximum of ten years where both the technical and commercial risks 
are considered to be sufﬁciently low 
foreign currencies 
assets and liabilities denominated in foreign currencies are translated into sterling 
at the rate ruling at the year end or where applicable at the estimated sterling 
equivalent taking account of future foreign exchange and similar contracts the 
trading results of overseas undertakings are translated at the average exchange 
rates for the year or where applicable at the estimated sterling equivalent taking 
account of future foreign exchange and similar contracts exchange adjustments 
arising from the retranslation of the opening net investments and from the 
translation of the proﬁts or losses at average rates are taken to reserves other 
exchange differences including those arising from currency conversions in the 
usual course of trading are taken into account in determining proﬁt on ordinary 
activities before taxation 
rollsroyce group plc annual report 2004 57  notes to the ﬁnancial statements continued 
1 accounting policies continued 
treasury instruments

the accounting treatment of the key instruments used by the group is as follows

i gains or losses arising on forward exchange contracts are taken to the proﬁt

and loss account in the same period as the underlying transaction 
ii net interest arising on interest rate agreements is taken to the proﬁt and 
loss account 
iii premiums paid or received on currency options are taken to the proﬁt and 
loss account when the option expires or matures 
iv gains or losses arising on jet fuel swaps are taken to the proﬁt and loss 
account in the same period as the underlying transaction 
if the underlying transaction to a hedge ceases to exist the hedge is terminated 
and the proﬁts and losses on termination are recognised in the proﬁt and loss 
account immediately if the hedge transaction is terminated the proﬁts and losses 
on termination are held in the balance sheet and amortised over the life of the 
original underlying transactions 
postretirement beneﬁts 
contributions to group deﬁned beneﬁt pension schemes are charged to the 
proﬁt and loss account so as to spread the cost of pensions at a substantially level 
percentage of payroll costs over employees’ service lives 
the cost of providing postretirement beneﬁts other than pensions is 
charged to the proﬁt and loss account over the service lives of the relevant 
employees 
accounting for leases 
i	 as lessee 
assets ﬁnanced by leasing agreements which give rights approximating to 
ownership ﬁnance leases have been capitalised at amounts equal to the 
original cost of the assets to the lessors and depreciation provided on the 
basis of the group depreciation policy the capital elements of future 
obligations under ﬁnance leases are included as liabilities in the balance 
sheet and the current year’s interest element having been allocated to 
accounting periods to give a constant periodic rate of charge on the 
outstanding balance is charged to the proﬁt and loss account 
the annual payments under all other lease arrangements known 
as operating leases are charged to the proﬁt and loss account on an 
accruals basis 
ii	 as lessor 
amounts receivable under ﬁnance leases are included under debtors and 
represent the total amount outstanding under lease agreements less 
unearned income finance lease income having been allocated to 
accounting periods to give a constant periodic rate of return on the net cash 
investment is included in turnover 
rentals receivable under operating leases are included in turnover on 
an accruals basis 
tangible ﬁxed assets and depreciation 
tangible ﬁxed assets are stated at cost or valuation less accumulated depreciation 
and any provision for impairments in value 
certiﬁcation costs and participation fees depreciation is provided on the following basis 
costs incurred in respect of meeting regulatory certiﬁcation requirements for new i land and buildings 
civil engineaircraft combinations and payments made to airframe manufacturers depreciation is provided on the original cost of purchases since 1996 and 
for this and participation fees are carried forward in intangible assets to the extent on the valuation of properties adopted at december 31 1996 and is 
that they can be recovered out of future sales and are charged to the proﬁt and calculated on a straight line basis at rates sufﬁcient to reduce them to their 
loss account over the programme life up to a maximum of ten years estimated residual value estimated lives as advised by the group’s 
professional valuers are 
interest a freehold buildings – ﬁve to 45 years average 23 years 
interest payable is charged to the proﬁt and loss account as incurred except b leasehold land and buildings – lower of valuers’ estimates or period 
where the borrowing ﬁnances tangible ﬁxed assets in the course of construction of lease 
relating to power development projects such interest is capitalised until the asset no depreciation is provided in respect of freehold land 
is complete and is then written off by way of depreciation of the relevant asset ii plant and equipment 
interest receivable is credited to the proﬁt and loss account as earned depreciation is provided on the original cost of plant and equipment and is 
calculated on a straight line basis at rates sufﬁcient to reduce them to their 
taxation estimated residual value estimated lives are in the range ﬁve to 25 years 
provision for taxation is made at the current rate and for deferred taxation at the average 15 years 
projected rate on all timing differences which have originated but not reversed at iii aircraft and engines 
the balance sheet date depreciation is provided on the original cost of aircraft and engines and is 
calculated on a straight line basis at rates sufﬁcient to reduce them to their 
scrip dividends estimated residual value estimated lives are in the range ﬁve to 20 years 
the amounts of dividends taken as shares instead of cash under the scrip average 13 years 
dividend scheme have been added back to reserves the nominal value of shares iv in course of construction 
issued under the scheme has been funded out of the share premium account no depreciation is provided on assets in the course of construction 
b shares 
the company issues b shares to shareholders in place of a dividend these can be 
redeemed for cash or converted into ordinary shares in the company as this is 
not classed as a dividend no accrual is made for this in the ﬁnancial statements 
rollsroyce group plc annual report 2004 58  2003 
notes to the ﬁnancial statements continued 
2 segmental analysis 
analysis by business 
civil aerospace 3040 2694 165 82 1142 1099 
defence 1374 1398 155 132 47 69 
marine 963 1003 40 39 567 577 
energy 489 508 8 23 387 346 
financial services 
3 
73 42 8 6 244 375 
5939 5645 376 270 2387 2466 
group turnover proﬁt before interest net assets 
1 
restated 
2 
2004 2003 2004 
£m £m £m 
restated 
2 
restated 
2 
2003 2004 
£m £m £m 
geographical analysis by origin 
united kingdom 3785 3467 129 76 1589 1444 
other 2154 2178 247 194 798 1022 
5939 5645 376 270 2387 2466 
4 
geographical analysis by destination 
united kingdom 915 1006 
rest of europe 954 919 
usa 1944 2061 
canada 205 129 
asia 1290 1047 
africa 196 110 
australasia 85 70 
other 350 303 
5939 5645 
exports from united kingdom 2919 2434 
sales to overseas subsidiaries 297 247 
sales by overseas subsidiaries 2393 2425 
sales by overseas joint arrangements 9 27 
total overseas 5024 4639 
1 
net assets exclude net debt of £80m 2003 net debt of £323m 
2 
2003 restated for adoption of uitf 38 see note 1 and additionally for the transfer of the diesels business from energy to marine 
3 
the turnover of ﬁnancial services businesses including share of joint ventures is £130m 2003 £127m 
4 
2003 has been represented to more accurately reﬂect a reclassiﬁcation of intercompany eliminations 
the reconciliation to underlying proﬁt before taxation is as follows 
2004 restated 2003 
1 
underlying underlying other 
proﬁt before nontrading proﬁt before proﬁt before exceptional nontrading proﬁt before 
interest items interest interest items items interest 
£m £m £m £m £m £m £m 
civil aerospace 170 5 165 131 34 15 82 
defence 155 — 155 147 11 4 132 
marine 67 27 40 78 7 32 39 
energy 14 6 8 23 1 1 23 
financial services 9 1 8 4 1 1 6 
415 39 
2 
376 375 54 
3 
51 
2 
270 
interest 70 90 
345 285 underlying proﬁt before taxation 
1 
2003 restated for adoption of uitf 38 see note 1 and additionally for the transfer of the diesels business from energy to marine 
2 
comprising amortisation of goodwill £47m 2003 £48m proﬁt on sale of businesses £9m 2003 £6m and loss on sale of ﬁxed assets £1m 2003 loss of £9m 
3 
rationalisation costs see note 3 
rollsroyce group plc annual report 2004 59  notes to the ﬁnancial statements continued 
3 proﬁt on ordinary activities before taxation 
2004 2003 
£m £m 
after crediting 
risk and revenue sharing partnerships receipts – credited to other operating income 73 153 
operating lease rentals receivable 37 24 
after charging 
exceptional items – rationalisation costs 
1 
— 54 
amortisation of goodwill 47 48 
amortisation of certiﬁcation costs 15 15 
depreciation of owned tangible ﬁxed assets 
2 
211 209 
depreciation of tangible ﬁxed assets held under ﬁnance leases 
2 
12 14 
operating lease rentals payable – hire of plant and equipment 55 58 
– hire of other assets 17 19 
risk and revenue sharing partnerships payments – included in cost of sales 240 179 
auditors’ fees were as follows during the year 
audit 2004 – group £32m 2003 £32m including company £01m 2003 £01m 
other 2004 – united kingdom £09m 2003 £12m 
– rest of world £06m 2003 £08m 
other fees paid to the auditors comprise 
taxation £07m 2003 £07m 
accounting £07m 2003 £03m 
mergers and acquisitions £01m 2003 £09m 
other — 2003 £01m 
accounting fees in 2004 include £05m for ifrs implementation mergers and acquisitions fees for 2003 include £08m relating to corporate restructuring 
1 
rationalisation costs in 2003 relate to termination of employment site decommissioning and relocation and related disruption to operations including accelerated depreciation of plant and machinery 
2 
including appropriate amounts charged to stocks 
4 net interest payable 
2004 2003 
£m £m 
interest payable on 
bank loans and overdrafts 28 35 
other borrowings 75 52 
finance leases 3 5 
106 92 
interest receivable 58 26 
48 66 
rollsroyce group plc annual report 2004 60  1 
notes to the ﬁnancial statements continued 
5 taxation 
uk overseas t otal 
2004 2003 2004 2003 2004 2003 
current tax £m £m £m £m £m £m 
current tax charge for the period 52 22 70 55 122 77 
less double tax relief 48 17 — — 48 17 
4 5 70 55 74 60 
adjustments in respect of prior periods 1 10 — 14 1 24 
joint ventures 3 4 3 4 6 8 
8 1 73 45 81 44 
deferred tax 
deferred tax chargecredit for the period 13 3 12 6 25 9 
adjustments in respect of prior periods 12 14 4 13 8 27 
joint ventures 3 2 — — 3 2 
12 12 89 52 101 64 
tax reconciliation 
proﬁt on ordinary activities before taxation 306 180 
nominal tax charge at uk corporation tax rate 30 2003 30 92 54 
uk rd tax credit 13 12 
goodwill not deductible for tax purposes 14 13 
fixed asset timing differences 12 4 
other timing differences 16 10 
other items 15 7 
adjustments in respect of prior periods 1 24 
81 44 
analysis of taxation charge 
trading activities 99 84 
non underlying items note 7 2 20 
101 64 
6 dividends – ordinary shares 
2004 2003 
£m £m 
interim nil 
1 
2003 318p per share — 53 
final proposed nil 
1 
2003 nil — — 
— 53 
payments to shareholders are made through the issue of b shares see accounting policies 
rollsroyce group plc annual report 2004 61  notes to the ﬁnancial statements continued 
7 earnings per ordinary share 
basic earnings per ordinary share are calculated by dividing the proﬁt attributable to ordinary shareholders of £204m 2003 £116m by 1690 million

2003 1647 million ordinary shares being the weighted average number of ordinary shares in issue during the year excluding own shares held under trust note 26

which have been treated as if they had been cancelled

underlying earnings per ordinary share have been calculated as follows

2004 2003 
pence £m pence £m 
proﬁt attributable to ordinary shareholders 1207 204 704 116 
exclude 
exceptional rationalisation costs — — 327 54 
loss on sale of ﬁxed assets excluding lease engines and aircraft sold by ﬁnancial services companies 006 1 055 9 
amortisation of goodwill 278 47 291 48 
net proﬁt on sale or termination of businesses 053 9 036 6 
related tax effect 012 2 121 20 
underlying earnings per ordinary share 1450 245 1220 201 
diluted earnings per ordinary share are calculated by dividing the proﬁt attributable to ordinary shareholders of £204m 2003 £116m by 1752 million 
2003 1671 million ordinary shares being 1690 million 2003 1647 million as above adjusted by the bonus element of existing share options of 62 million 
2003 24 million 
8 employee information 
2004 2003 
number number 
average weekly number of group employees during the year 
united kingdom 21000 21700 
overseas 14200 14400 
35200 36100 
civil aerospace 19900 20400 
defence 5100 5000 
marine 7200 7300 
1 
energy 2900 3300 
1 
financial services 100 100 
35200 36100 
£m £m 
group employment costs 
2 
wages and salaries 1297 1316 
social security costs 128 132 
pensions and other postretirement beneﬁts note 30 138 112 
1563 1560 
1 
restated for the transfer of the diesels business from energy to marine 
2 
directors’ remuneration is shown on page 46 
rollsroyce group plc annual report 2004 62  notes to the ﬁnancial statements continued 
9 intangible ﬁxed assets 
certiﬁcation 
costs and 
participation application 
goodwill fees engineering t otal 
£m £m £m £m 
cost 
at january 1 2004 960 175 43 1178 
exchange adjustments 3 — — 3 
additions — 99 11 110 
disposals 4 — — 4 
at december 31 2004 959 274 54 1287 
accumulated amortisation 
at january 1 2004 201 114 — 315 
exchange adjustments 3 — — 3 
provided during the year 47 15 — 62 
disposals 4 — — 4 
at december 31 2004 247 129 — 376 
net book value at december 31 2004 712 145 54 911 
net book value at december 31 2003 759 61 43 863 
10 tangible ﬁxed assets 
land and plant and aircraft and in course of 
buildings equipment engines construction t otal 
£m £m £m £m £m 
cost or valuation 
at january 1 2004 522 1949 256 156 2883 
exchange adjustments 1 17 10 3 31 
additions at cost 10 56 6 119 191 
on disposals of businesses 1 6 — — 7 
reclassiﬁcations 11 86 — 97 — 
disposalswriteoffs 6 100 102 — 208 
at december 31 2004 535 1968 150 175 2828 
accumulated depreciation 
at january 1 2004 96 941 96 — 1133 
exchange adjustments — 10 3 — 13 
provided during the year 
1 
20 176 27 — 223 
on disposals of businesses — 4 — — 4 
disposalswriteoffs 1 79 57 — 137 
at december 31 2004 115 1024 63 — 1202 
net book value at december 31 2004 420 944 87 175 1626 
net book value at december 31 2003 426 1008 160 156 1750 
includes impairment charges of £18m for plant and equipment £1m for land and buildings and £14m relating to the writedown of aircraft to values provided by independent aircraft appraisers 
rollsroyce group plc annual report 2004 63 
1  1 
notes to the ﬁnancial statements continued 
10 tangible ﬁxed assets continued 
2004 2003 
tangible ﬁxed assets include £m £m 
net book value of ﬁnance leased assets 48 105 
assets held for use in operating leases 
cost 131 233 
depreciation 49 82 
net book value 82 151 
nondepreciable land 97 98 
land and buildings at cost or valuation comprise 
cost 311 296 
valuation at december 31 1985 1 1 
valuation at december 31 1996 
1 
223 225 
535 522 
land and buildings at net book value comprise 
freehold 388 395 
long leasehold 16 16 
short leasehold 16 15 
420 426 
on a historical cost basis the net book value of land and buildings would have been as follows 
cost 519 506 
depreciation 188 176 
331 330 
capitalised interest included in net book value of assets in course of construction 2 2 
capital expenditure commitments – contracted but not provided for 86 22 
the group has followed the transitional provisions of frs 15 ‘tangible ﬁxed assets’  to retain the book value of land and buildings certain of which were revalued in 
1996 see 
1 
below 
group properties were revalued at december 31 1996 as follows

i specialised properties including certain of the group’s major manufacturing sites were revalued on a depreciated replacement cost basis

ii nonspecialised properties were revalued by reference to their existing use value

iii properties surplus to the group’s requirements were revalued on an open market value basis

in the united kingdom the revaluation was carried out by gerald eve chartered surveyors fuller peiser chartered surveyors and storey sons  parker chartered 
surveyors in accordance with the appraisal and valuation manual of the royal institution of chartered surveyors overseas properties were valued principally by 
independent local valuers 
rollsroyce group plc annual report 2004 64  notes to the ﬁnancial statements continued 
11 investments – subsidiary undertakings 
shares 
£m 
cost 
at january 1 2004 2153 
additions 45 
at december 31 2004 2198 
the principal subsidiary undertakings are listed on pages 82 and 83 
12 investments – joint ventures 
shares 
at cost 
£m 
share of post 
acquisition 
reserves 
£m 
loans 
£m 
t otal 
£m 
at january 1 2004 128 68 6 202 
1 
exchange adjustments 4 4 — 8 
additions 1 — 1 2 
share of retained proﬁt — 3 — 3 
at december 31 2004 125 67 7 199 
1 
the principal joint ventures are listed on pages 84 and 85 
1 
investments in joint ventures are represented by 
2004 2003 
£m £m 
share of aggregate assets 
fixed 662 676 
current 475 437 
share of aggregate liabilities 
2 
due within one year 422 367 
due after one year 521 549 
goodwill 5 5 
199 202 
2 
includes borrowings of 518 520 
rollsroyce group plc annual report 2004 65  notes to the ﬁnancial statements continued 
13 investments – other 
unlisted 
investments 
£m 
at january 1 2004 63 
additions — 
amortisationdisposals 6 
at december 31 2004 57 
14 stocks 
2004 2003 
£m £m 
raw materials 147 156 
work in progress 423 369 
longterm contracts work in progress 148 117 
finished goods 615 596 
payments on account 63 29 
1396 1267 
progress payments received against 
1 
longterm contracts 178 142 
other stocks 137 163 
1081 962 
1 
includes payments received from joint ventures 15 16 
rollsroyce group plc annual report 2004 66  notes to the ﬁnancial statements continued 
15 debtors – amounts falling due within one year 
group company 
2004 2003 2004 2003 
£m £m £m £m 
trade debtors 742 956 — — 
amounts recoverable on contracts 91 94 — — 
amounts owed by – subsidiary undertakings — — 501 1 
– joint ventures 202 162 — — 
corporate taxation 2 1 — — 
deferred tax assets note 23 — 23 — — 
other debtors 187 115 — — 
prepayments and accrued income 133 146 — — 
1357 1497 501 1 
16 debtors – amounts falling due after one year 
2004 2003 
£m £m 
trade debtors 14 61 
amounts recoverable on contracts 534 533 
amounts owed by – subsidiary undertakings — — 
– joint ventures 37 47 
deferred tax assets note 23 96 94 
other debtors 58 53 
prepayments and accrued income 51 82 
prepaid pension contributions 263 239 
1053 1109 
17 shortterm deposits and investments 
2004 
£m 
2003 
£m 
shortterm deposits 694 135 
investments – government securities and corporate bonds 36 39 
730 174 
18 borrowings – amounts falling due within one year 
2004 2003 
£m £m 
overdrafts 13 20 
bank loans 2 58 
other loans — 1 
obligations under ﬁnance leases 12 15 
4
1
2 notes 2005 
1 
177 — 
204 
2 
94 
1 
the group has borrowed through a subsidiary s256m in order to provide a loan for general purposes this note is the subject of currency swap agreements under which counterparties have undertaken to pay 
amounts of ﬁxed rates of interest and exchange in consideration for amounts payable by the subsidiary at variable rates of interest and at ﬁxed exchange rates 
2 
the company has provided guarantees in respect of borrowings of subsidiary undertakings of £177m 
rollsroyce group plc annual report 2004 67  notes to the ﬁnancial statements continued 
19 other creditors – amounts falling due within one year 
group company 
2004 2003 2004 2003 
£m £m £m £m 
payments received on account 
1 
277 332 — — 
trade creditors 572 476 — — 
amounts owed to – subsidiary undertakings — — — — 
– joint ventures 110 113 — — 
corporate taxation 176 185 — — 
other taxation and social security 71 56 — — 
other creditors 612 603 — — 
accruals and deferred income 752 941 — — 
interim dividend since paid — 53 — 53 
2570 2759 — 53 
1 
includes payments received from joint ventures 66 77 — — 
20 borrowings – amounts falling due after one year 
2004 2003 
£m £m 
unsecured 
bank loans 73 115 
4
1
2 notes 2005 — 177 
6
3
8 notes 2007 
1 
310 310 
7
3
8 notes 2016 200 200 
584 notes 2010 
2 
97 104 
638 notes 2013 
2 
120 128 
655 notes 2015 
2 
43 47 
4
1
2 notes 2011 
1 
500 — 
other loan 2009 interest rate nil 1 2 
secured 
bank loans — 3 
obligations under ﬁnance leases payable 
3 
between one and two years 6 39 
between two and ﬁve years 14 27 
after ﬁve years — 3 
zerocoupon bonds 20052007 including 90 interest accretion 
4 
— 42 
1364 
5 
1197 
repayable 
between one and two years – by instalments 9 27 
– otherwise 65 239 
between two and ﬁve years – by instalments 19 50 
– otherwise 310 389 
after ﬁve years – by instalments 1 13 
– otherwise 960 479 
1364 1197 
1 
the group has borrowed through a subsidiary s1250m in order to provide a loan for general purposes these notes are the subject of currency swap agreements under which counterparties have undertaken to 
pay amounts at ﬁxed rates of interest and exchange in consideration for amounts payable by the subsidiary at variable rates of interest and at ﬁxed exchange rates 
2 
the group has borrowed through a subsidiary us500m in the us private placement market this borrowing is the subject of interest rate swap agreements under which the group has undertaken to pay ﬂoating 
rates of interest the borrowing forms part of a net asset hedging arrangement 
3 
obligations under ﬁnance leases are secured by related leased assets 
4 
secured on aircraft ﬁnanced by joint arrangements repayment of the zerocoupon bonds is also guaranteed by a subsidiary 
5 
the company has provided guarantees in respect of borrowings of subsidiary undertakings of £1336m 
rollsroyce group plc annual report 2004 68  notes to the ﬁnancial statements continued 
21 other creditors – amounts falling due after one year 
2004 2003 
£m £m 
payments received on account 
1 
118 120 
amounts owed to – subsidiary undertakings — — 
– joint ventures 25 25 
other creditors 128 51 
accruals and deferred income 269 230 
540 426 
1 
includes payments received from joint ventures 19 33 
22 provisions for liabilities and charges 
at unused charged to at 
january 1 exchange amounts proﬁt and december 31 
2004 adjustments reversed loss account utilised 2004 
£m £m £m £m £m £m 
postemployment pensions and other postretirement beneﬁts 160 9 — 17 9 159 
deferred taxation note 23 214 — 17 14 — 211 
warrantyguarantees 187 1 3 48 60 171 
contract loss 68 1 1 16 34 48 
customer ﬁnancing 92 — — 51 27 116 
insurance 25 — — 18 5 38 
restructuring and rationalisation 22 — 1 4 9 16 
other 27 1 — 10 8 28 
795 12 22 178 152 787 
postemployment pensions and other postretirement provisions are long term in nature and the timing of their utilisation is uncertain

warranty provisions 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 one year

customer ﬁnancing provisions cover guarantees provided for asset values andor ﬁnancing as described in note 28timing of utilisation is uncertain

insurance provisions relate to the group’s captive insurance business with timing of utilisation being uncertain

other provisions comprise a number of liabilities with varying expected utilisation rates

rollsroyce group plc annual report 2004 69  notes to the ﬁnancial statements continued 
23 deferred taxation 
£m 
at january 1 2004 97 
amount charged to proﬁt and loss account 17 
exchange movements 1 
at december 31 2004 115 
there are other deferred tax assets totalling £126m 2003 £119m that have not been recognised on the basis that their future economic beneﬁt is uncertain

the undistributed proﬁts of overseas subsidiary undertakings and joint ventures may be liable to overseas taxes andor united kingdom tax after allowing for double

tax relief  if remitted as dividends to the uk no deferred tax has been provided as there are currently no commitments to pay such dividends

the analysis of the deferred tax position is as follows

2004 2003 
£m £m 
fixed asset timing differences 131 123 
other timing differences 90 72 
losses 26 8 
advance corporation tax 80 90 
115 97 
included in 
provisions 211 214 
debtors 96 117 
115 97 
the above ﬁgures exclude taxation payable on capital gains which might arise from the sale of ﬁxed assets at the values at which they are stated in the group’s 
balance sheet 
rollsroyce group plc annual report 2004 70  notes to the ﬁnancial statements continued 
24 financial instruments 
details of the group’s policies on the use of ﬁnancial instruments are given in the finance director’s review on pages 26 to 31 and in the accounting policies on 
pages 57 and 58 the following disclosures provide additional information regarding the effect of these instruments on the ﬁnancial assets and liabilities of the group 
excluding shortterm debtors and creditors where permitted by frs 13 
funding and interest rates 
2004 
sterling us dollar euro other total 
£m £m £m £m £m 
financial assets 
cash at bank and in hand 
1 
200 418 45 95 758 
shortterm deposits 
2 
652 34 3 5 694 
government securities and corporate bonds 
3 
34 2 — — 36 
unlisted ﬁxed asset investments 47 3 2 5 57 
debtors – amounts falling due after one year 41 36 13 19 109 
974 493 63 124 1654 
financial liabilities 
4 
floatingrate borrowings 
5 
714 180 8 5 907 
fixedrate borrowings 508 87 — 65 660 
borrowings on which no interest is paid 
6 
— — — 1 1 
other creditors – amounts falling due after one year 42 31 1 12 86 
1264 298 9 83 1654 
2003 
sterling us dollar euro other total 
£m £m £m £m £m 
financial assets 
cash at bank and in hand 
1 
139 497 34 124 794 
shortterm deposits 
2 
108 — — 27 135 
government securities and corporate bonds 
3 
39 — — — 39 
unlisted ﬁxed asset investments 47 9 2 5 63 
debtors – amounts falling due after one year 87 59 13 2 161 
420 565 49 158 1192 
financial liabilities 
4 
floatingrate borrowings 
5 
— 290 8 12 310 
fixedrate borrowings 729 130 2 118 979 
borrowings on which no interest is paid 
6 
— — — 2 2 
other creditors – amounts falling due after one year 32 43 — — 75 
761 463 10 132 1366 
notes 
1 
cash at bank and in hand comprises bank balances and deposits placed on money markets overnight 
2 
shortterm deposits are deposits placed on money markets for periods ranging from two nights up to one month 
3 
interest on the securities and bonds are at ﬁxed rates the weighted average interest rate on the sterling securities is 58 2003 50

the weighted average time for these securities is 25 years 2003 25 years

4 
financial liabilities are stated after taking into account the various interest rate and currency swaps entered into by the group 
5 
floatingrate ﬁnancial liabilities comprise borrowings bearing interest at rates ﬁxed in advance for periods ranging from one to six months based on the applicable libor rate 
6 
the weighted average period for borrowings on which no interest is paid is ﬁve years 2003 six years 
rollsroyce group plc annual report 2004 71  notes to the ﬁnancial statements continued 
24 financial instruments continued 
the analysis of ﬁxedrate borrowings is as follows 
total 
£m 
weighted 
average 
interest rate 
at which 
ﬁxed 
 
2004 
weighted 
average 
period for 
which rate 
is ﬁxed 
months 
total 
£m 
weighted 
average 
interest rate 
at which 
ﬁxed 
 
2003 
weighted 
average 
period for 
which rate 
is ﬁxed 
months 
currency 
sterling 508 69 15 729 67 15 
us dollar 87 65 43 130 72 38 
other 65 54 15 120 54 22 
the maturity proﬁle of the group’s ﬁnancial liabilities is as follows 
2004 
£m 
2003 
£m 
in one year or less or on demand 204 94 
in more than one year but not more than two years 117 304 
in more than two years but not more than ﬁve years 372 476 
in more than ﬁve years 961 492 
1654 1366 
borrowing facilities 
the group has various borrowing facilities available to it the undrawn committed facilities available at december 31 2004 were as follows 
expiring within one year 
2004 
£m 
— 
2003 
£m 
91 
expiring in one to two years — 67 
expiring thereafter 250 853 
250 1011 
exchange risk management 
the table below shows the group’s currency exposures at december 31 2004 on currency transactions that give rise to the net currency gains and losses recognised 
in the proﬁt and loss account such exposures comprise the net monetary assets and liabilities of the group at december 31 2004 that are not denominated in the 
functional currency of the operating company involved the exposures are stated after taking into account the effects of currency swaps and forward foreign 
exchange contracts 
2004 2003 
net foreign currency monetary assetsliabilities net foreign currency monetary assetsliabilities 
sterling us dollar euro other sterling us dollar euro other 
functional currency of group operation £m £m £m £m £m £m £m £m 
sterling — — 1 — — 3 — 3 
us dollar — — — 1 — — — — 
euro — 1 — — 3 — — 1 
other 1 4 1 4 2 2 3 1 
rollsroyce group plc annual report 2004 72  notes to the ﬁnancial statements continued 
24 financial instruments continued 
fair values of ﬁnancial assets and ﬁnancial liabilities 
the estimated fair value of the group’s ﬁnancial instruments are summarised below 
2004 2003 
book value fair value book value fair value 
£m £m £m £m 
unlisted ﬁxed asset investments 57 57 63 63 
cash at bank and in hand 758 758 794 794 
shortterm deposits and investments 730 730 174 176 
shortterm debt 204 211 94 92 
longterm debt 1364 1569 1197 1342 
other creditors – amounts falling due after one year 86 82 75 72 
debtors – amounts falling due after one year 109 104 161 154 
derivatives used to hedge the interest currency and commodity exposure of the business 
jet fuel swaps — 9 — 6 
interest rate swaps 23 129 27 1 
forward foreign currency contracts — 986 — 724 
forward purchase of shares to meet share option commitments — 40 — 10 
where available market values have been used to determine current values where market values are not available fair values have been calculated by discounting 
expected future cash ﬂows at prevailing interest and exchange rates 
cash at bank and in hand shortterm deposits and shortterm borrowings 
the book value approximates to fair value either due to the shortterm maturity of the instruments or because the interest rate of investments is reset after periods 
not greater than six months 
derivatives 
the fair value of derivatives is the estimated amount based on current market rates which the group would expect to pay or receive were it to terminate the 
derivatives at the balance sheet date 
hedges of future transactions 
as described in the finance director’s review on pages 26 to 31 the group’s policy is to hedge the following exposures 
interest rate risk – using interest swaps 
currency exposures on future forecast sales – using forward foreign currency contracts currency swaps and currency options 
commodity price risk – using jet fuel swaps 
gains and losses on instruments used for hedging are dealt with as outlined in the accounting policies on pages 57 and 58 
unrecognised gains and losses on instruments used for hedging and the movements therein are as follows 
2004 2003 
total net total net 
gains losses gainslosses gains losses gainslosses 
£m £m £m £m £m £m 
unrecognised gains and losses on hedges at january 1 2004 980 234 746 390 331 59 
gains and losses arising in previous year that were recognised in 2004 280 90 190 199 143 56 
gains and losses arising in previous year that were not recognised in 2004 700 144 556 191 188 3 
gains and losses arising in 2004 that were not recognised in 2004 618 33 585 789 46 743 
unrecognised gains and losses on hedges at december 31 2004 of which 1318 177 1141 980 234 746 
gains and losses expected to be recognised in 2005 564 123 441 260 129 131 
gains and losses expected to be recognised thereafter 754 54 700 720 105 615 
rollsroyce group plc annual report 2004 73  notes to the ﬁnancial statements continued 
25 share capital 
authorised 
at january 1 and december 31 2004 1 50000 — 2499999998 500 
upon approval of b share scheme by 2004 agm 1000000000000 1000 
issued and fully paid 
at january 1 2004 1 — — — — 1666619843 333 
issued for b share scheme — 83922435550 84 — — — — 
exercise of share options — — — — — 2654484 1 
in lieu of paying dividends in cash — — — — — 10671927 2 
b share conversion into ordinary shares 52631193754 52 — — 24826034 5 
redemption of b shares — 26690531732 27 — — — — 
at december 31 2004 1 4600710064 5 — — 1704772288 341 
nonequity equity 
nominal preference nominal ordinary nominal 
special b shares value shares value shares value 
share of £1 of 01p each £m of £1 each £m of 20p each £m 
certain special rights set out in the company’s articles of association attach to the special rights redeemable preference share special share issued to 
hm government subject to the provisions of the companies act 1985 the special share may be redeemed by the treasury solicitor at par at any time 
the special share confers no rights to dividends or to vote at general meetings but in the event of a windingup it shall be repaid at its nominal value in priority to any 
other shares 
during the year the group’s b share scheme for the purpose of making payments to shareholders received approval at the annual general meeting agm and in 
june 83922435550 noncumulative redeemable convertible preference b shares of 01p were issued shareholders are able to redeem any number of their b shares 
for cash or convert them into ordinary shares b shares retained attract a dividend of 75 of libor on the 01p nominal value of each share paid on a semiannual 
basis and have limited voting rights in certain circumstances the company will have the option to redeem the b shares this option can be exercised at any time if the 
aggregate number of b shares in issue is less than 10 of the aggregate number of b shares issued or on the acquisition or capital restructuring of the company 
on a return of capital on a windingup the holders of b shares shall be entitled in priority to any payment to the holders of ordinary shares to the repayment of the 
nominal capital paid up or credited as paidup on the b shares held by them together with a sum equal to the outstanding preferential dividend which will have 
accrued but not been paid until the date of return of capital 
the redemption and conversion of b shares shown in the above table took place on or as soon as possible after july 5 2004 for shareholders who made an election 
on or before june 18 2004 future redemption and conversion opportunities are expected to be made available for holders of b shares 
rollsroyce group plc annual report 2004 74  2005 
notes to the ﬁnancial statements continued 
25 share capital continued 
at december 31 2004 the following ordinary shares were subject to options 
date of exercise exercisable 
grant number price dates 
executive share option scheme 1995 488250 176p 
1996 50400 238p 20052006

executive share option plan 1999 1035367 269p 20052009

1999 232540 216p 20052009

2000 5024472 194p 20052010

2000 1544964 194p 20052010

2000 18404 163p 20052010

2000 86658 163p 20052010

2000 11731 170p 20052010

2001 827115 216p 20052011

2001 7929148 216p 20052011

2001 14150471 216p 20052011

2001 27522 218p 20052011

2001 297337 218p 20052011

2002 12994293 188p 20052012

2002 632222 188p 20052012

2002 581312 216p 20052012

2003 35172444 77p 20062013

2003 11340 170p 20062013

2003 166391 170p 20062013

sharesave schemes 1997 2266569 205p 
1999 7105752 194p 20052007 
2001 40951006 108p 200520072009 
2003 24000209 141p 20062009 
under the terms of the executive share option scheme and the executive share option plan options granted to 525 directors and senior executives were outstanding 
at december 31 2004 
under the terms of the sharesave schemes the board may grant options to purchase ordinary shares in the company each year to those employees who enter into 
an inland revenue approved save as you earn saye contract for a period of either three ﬁve or seven years 
employees in 28 countries participate in sharesave schemes through arrangements broadly comparable to the uk scheme 
rollsroyce group plc annual report 2004 75 
2005  1 
notes to the ﬁnancial statements continued 
26 reserves 
group 
nondistributable 
capital 
share 
premium 
revaluation 
reserves 
merger 
reserve 
redemption 
reserve 
proﬁt and 
loss account 
1 
£m £m £m £m £m 
at january 1 2004 as previously reported 1 96 3 — 1708 
prior year adjustment see note 1 ———— 1 
at january 1 2004 restated 1 96 3 — 1707 
exchange adjustments — — — — 38 
scrip dividend adjustment — — 2 — 
arising on share issues net of expenses 3 — — — — 
transfers between reserves — 7 — — 
writeback of purchased goodwill relating to disposals — — 2 — — 
retained proﬁt for the year — — — — 204 
relating to own shares ———— 2 
issue of b shares — — — — 84 
redemption of b shares — — — 27 27 
conversion of b shares into ordinary shares — — — 47 — 
at december 31 2004 4 89 3 74 1787 
company 
at january 1 2004 1 — 1004 — 763 
scrip dividend — — 2 — 
arising on share issues net of expenses 3 — — — — 
retained proﬁt for the year 
2 
———— 601 
issue of b shares — — 84 — — 
redemption of b shares — — — 27 27 
conversion of b shares into ordinary shares — — — 47 — 
at december 31 2004 4 — 918 74 1357 
the cumulative amount of goodwill arising on the acquisition of undertakings still in the group at december 31 2004 written off against other reserves amounts 
to £370m 2003 £372m the continuance of this basis in respect of pre1998 acquisitions is permitted under the transitional arrangements of frs 10 
the group has adopted uitf 38 ‘accounting for esop trusts’ which requires own shares to be reclassiﬁed within shareholders fundsamounts relating to own shares have been included in the proﬁt and loss

account reserve

ordinary shares in the company are held in two trusts

i in respect of employee share schemes the shares held by this independently managed trust were purchased on the open market

£m 
may 5 2004 37130 at £195 per share 
october 22 2004 400000 at £198 per share 
at december 31 2004 the shares held had a market value of £11m in accordance with uitf 17 ‘employee share schemes’  the group is required to amortise the cost of likely awards over each separate

performance measurement period and to include this charge as part of the cost of ‘wages and salaries’  the uitf is a committee of the accounting standards board

ii in respect of a qualifying employee share trust quest  which provides employees with shares under inland revenue approved save as you earn saye share schemes

as permitted by uitf 17 no amortisation charge has been made at december 31 2004 a total of 410747 of these shares had still not been allocated to option holders their market value being £10m 
these outstanding allocations are expected to occur in 2005 
both trusts have waived their voting rights and their costs of administration have been charged to the group’s proﬁt and loss account 
a dividend of £601m was received on december 21 2004 from a subsidiary company rollsroyce plc of this amount £550m is separately identiﬁed in the company’s accounting records 
rollsroyce group plc annual report 2004 76 
20 
7 
20 
01 
08 
2  notes to the ﬁnancial statements continued 
27 operating lease annual commitments 
leases of land and buildings which expire 
within one year 2 2 
between one and ﬁve years 4 3 
after ﬁve years 10 9 
other leases which expire 
within one year 2 4 
between one and ﬁve years 21 7 
after ﬁve years 35 42 
2004 2003 
£m £m 
28 contingent liabilities 
in connection with the sale of its products on some occasions the group enters into individually and collectively signiﬁcant longterm contingent obligations these 
can involve inter alia guaranteeing ﬁnancing for customers guaranteeing a proportion of the values of both engine and airframe entering into leasing transactions 
commitments to purchase aircraft and in certain circumstances could involve the group assuming certain of its customers’ entitlements and related borrowing or cash 
ﬂow obligations until the value of the security can be realised 
at the date these accounts are approved the directors regard the possibility that there will be any signiﬁcant loss arising from these contingencies which cover a 
number of customers over a long period of time as remote in determining this and the values below the directors have taken account of advice principally from 
airclaims limited professional aircraft appraisers who base their calculations on a current and future fair market value basis assuming an armslength transaction 
between a willing seller and a willing buyer 
at december 31 2004 the total gross contingent liabilities relating to ﬁnancing arrangements on all delivered aircraft less insurance arrangements and relevant 
provisions amounted to £999m 2003 £1090m of which £12m 2003 £39m related to sales ﬁnance support to joint ventures taking into account the net realisable 
value of the relevant security the net contingent liabilities in respect of ﬁnancing arrangements on all delivered aircraft amounted to £189m 2003 £184m sensitivity 
calculations are complex but for example if the value of the relevant security was reduced by 20 a net contingent liability of approximately £277m 2003 £262m 
would resultthere are also net contingent liabilities 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 related ﬁnancing will only be put in place at the appropriate time 
contingent liabilities exist in respect of guarantees provided by the group in the ordinary course of business for product deliveryperformance and reliability the 
company and some of its subsidiary undertakings have 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 uk based 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 or company 
in addition to the above the company has provided guarantees in respect of borrowings of subsidiary undertakings as shown in notes 18 and 20 
29 related party transactions 
joint ventures 
in the course of normal operations the group has contracted on an armslength basis with joint ventures the aggregated transactions which are considered to be 
material and which have not been disclosed elsewhere in the ﬁnancial statements are summarised below 
2004 
£m 
2003 
£m 
other income 15 9 
purchases of goods and services from joint ventures 437 682 
rollsroyce group plc annual report 2004 77  notes to the ﬁnancial statements continued 
30 postretirement beneﬁts 
pensions 
the group’s pension schemes are mainly of the deﬁned beneﬁt type and the assets of the schemes are held in separate trustee administered funds 
the pension cost relating to the uk schemes is assessed in accordance with ssap 24 ‘accounting for pension costs’  based on the advice of independent qualiﬁed 
actuaries using the projected unit method the latest actuarial valuations of the principal schemes were as at march 31 2004 for the vickers group pension scheme 
april 5 2004 for the rollsroyce group pension scheme and march 31 2003 for the rollsroyce pension fund the principal assumptions used for the purpose of 
ssap 24 were that in the long term the average returns on investments would be 2 per annum higher than the average increase in pay and 36 per annum higher 
than the average increase in pensions assets were valued on a market related basis for the vickers group pension scheme and the rollsroyce group pension scheme 
and on an actuarial basis for the rollsroyce pension fund 
the pension cost relating to overseas schemes is calculated in accordance with local best practice and regulations 
the total pension cost for the group was £123m 2003 £95m of which £25m 2003 £23m relates to overseas schemes 
the aggregate of the market values of the uk schemes at the dates of the latest actuarial valuations was £3804m the actuarial value of the assets of the principal 
schemes represented respectively 92 for the rollsroyce pension fund 79 for the vickers group pension scheme and 89 for the rollsroyce group pension 
scheme of the value of the projected accrued liabilities 
the difference between the value of the assets and the value of the projected accrued liabilities of the three principal schemes after allowing for expected future 
increases in earnings and pension increases is being amortised over periods of between 85 and 12 years being the average expected remaining service lives of the 
pensionable employees 
prepayments of £263m 2003 £239m are included in debtors and accruals of £22m 2003 £29m are included in provisions for liabilities and charges being the 
differences between the accumulated amounts paid into the pension funds and the accumulated pension costs 
postretirement beneﬁts other than pensions 
in the usa 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 in the usa 540 retired employees currently beneﬁt from these provisions and it is estimated that 4385 current employees will be eligible on retirement 
the cost of postretirement beneﬁts other than pensions for the group was £15m 2003 £17m provisions for the beneﬁt obligations at december 31 2004 
amounted to £124m 2003 £119m and are included in provisions for liabilities and charges there were no plan assets at either december 31 2004 or december 31 
2003 the future costs of beneﬁts are assessed in accordance with the advice of independent qualiﬁed actuaries and are based on a weighted average discount rate of 
58 and a weighted average assumed healthcare costs trend rate of 8 grading down to 5 over seven years 
rollsroyce group plc annual report 2004 78  notes to the ﬁnancial statements continued 
30 postretirement beneﬁts continued 
frs 17 disclosures 
the full implementation of frs 17 ‘retirement beneﬁts’ has been deferred however certain disclosures are required which are included below 
the valuations with respect to uk schemes have been based on the most recent actuarial valuation as noted above and updated by the scheme actuary to 
december 31 2004 taking account of the requirements of frs 17 for the material overseas deﬁned beneﬁt schemes the last formal actuarial valuations have been 
updated to december 31 2004 by a qualiﬁed actuary taking account of the requirements of frs 17 
the principal actuarial assumptions were as follows 
2004 2003 2002 
uk overseas uk overseas uk overseas 
schemes schemes schemes schemes schemes schemes 
  
1 
  
1 
  
1 
rate of increase in salaries 44 24 43 28 38 29 
rate of increase of pensions in payment and deferment 26 02 26 02 23 04 
discount rate 53 57 54 61 55 66 
inﬂation assumption 29 28 28 27 23 29 
1 
weighted average percentage 
the assets in the principal schemes and the expected rates of return at december 31 were as follows 
2004 2003 2002 
uk schemes uk schemes uk schemes 
expected expected expected 
longterm longterm longterm 
rate of return market value rate of return market value rate of return market value 
 £m  £m  £m 
equities 76 3007 83 2884 80 2524 
sovereign debt 46 699 48 692 44 644 
corporate bonds 51 644 51 580 50 492 
other 53 188 54 116 59 144 
total market value of assets — 4538 — 4272 — 3804 
present value of scheme liabilities — 5688 — 5493 — 5400 
deﬁcit in the schemes — 1150 — 1221 — 1596 
related deferred tax asset — 345 — 366 — 479 
net pension liability — 805 — 855 — 1117 
2004 2003 
overseas schemes overseas schemes overseas schemes 
expected expected expected 
longterm longterm longterm 
rate of return market value rate of return market value rate of return market value 
 £m  £m  £m 
equities 83 99 83 86 94 63 
sovereign debt — — — — — — 
corporate bonds 56 58 57 49 65 45 
other 68 14 67 13 65 9 
total market value of assets — 171 — 148 — 117 
present value of scheme liabilities — 419 — 383 — 360 
deﬁcit in the schemes — 248 
1 
— 235 
1 
— 243 
1 
related deferred tax asset — 77 — 79 — 85 
net pension liability — 171 — 156 — 158 
provisions of £159m 2003 £160m 2002 £158m exist primarily for overseas postemployment beneﬁts and pensions see note 22 
rollsroyce group plc annual report 2004 79 
2002 
1  notes to the ﬁnancial statements continued 
30 postretirement beneﬁts continued 
amounts charged to proﬁt and loss account 
2004 2003 
uk overseas uk overseas 
schemes schemes schemes schemes 
£m £m £m £m 
operating proﬁt 
current service charge 75 19 81 19 
gain resulting from curtailment 2 — 567 
1 
— 
73 19 486 19 
finance income 
expected return on pension scheme assets 303 11 257 10 
interest on pension scheme liabilities 292 23 292 25 
11 12 35 15 
total creditcharge 62 31 451 34 
1 
results from agreed beneﬁt reductions 
movement in scheme deﬁcits during the year 
2004 2003 
uk overseas uk overseas 
schemes schemes schemes schemes 
£m £m £m £m 
at january 1 1221 235 1596 243 
exchange adjustments — 14 — 18 
current service cost 75 19 81 19 
curtailment 2 — 567 — 
contributions 111 29 101 27 
finance income 11 12 35 15 
actuarial loss 22 25 177 3 
at december 31 1150 248 1221 235 
history of experience gains and losses and amount recognised in statement of total recognised gains and losses 
2004 2003 
uk overseas uk overseas 
schemes schemes schemes schemes 
£m £m £m £m 
difference between the expected and actual return on scheme assets 
amount 130 2 350 
percentage of scheme assets 3 1 8 7 
experience gains and losses on scheme liabilities 
amount 59 10 147 
percentage of the present value of scheme liabilities 1 2 3 4 
effect of changes in assumptions underlying the present value of scheme liabilities 
amount 167 37 380 27 
percentage of the present value of scheme liabilities 3 9 7 7 
exchange adjustments — 14 — 18 
total amount recognised in the statement of total recognised gains and losses 
amount 22 11 177 15 
percentage of the present value of scheme liabilities 0 3 3 4 
rollsroyce group plc annual report 2004 80 
10 
14  notes to the ﬁnancial statements continued 
30 postretirement beneﬁts continued 
net assets 
if the above net pensions liabilities had been recognised in the ﬁnancial statements the net assets and proﬁt and loss reserve would be as follows 
restated restated 
2004 2003 2002 
£m £m £m 
net assets per balance sheet 2307 2143 2034 
net pension liability 976 1011 1275 
pension prepayment 
1 
186 168 143 
provisions for pensions and other post retirement beneﬁts 
2 
107 104 101 
total frs 17 pension adjustment 1055 1075 1317 
net assets under frs 17 1252 1068 717 
1 
pension prepayment currently recorded group £263m 2003 £239m 2002 £204m less related deferred tax liability of £77m 2003 £71m 2002 £61m 
2 
provisions currently recorded £159m 2003 £160m 2002 £158m less related deferred tax asset of £52m 2003 £56m 2002 £57m 
proﬁt and loss reserve 
restated restated 
2004 2003 2002 
£m £m £m 
proﬁt and loss reserve 1787 1707 780 
total frs 17 pension adjustment 1055 1075 1317 
proﬁt and loss reserve under frs 17 732 632 537 
31 disposal or termination of businesses 
during the year the group disposed of its interests in rollsroyce gear systems inc as summarised below 
total 
£m 
tangible ﬁxed assets 3 
stocks 2 
debtors 5 
creditors 4 
net assets 6 
related goodwill 2 
8 
proﬁt on sale or termination of businesses 9 
disposal proceeds less costs 17 
payment of amounts deferred at december 31 2003 1 
net cash inﬂow per cash ﬂow statement 16 
rollsroyce group plc annual report 2004 81  principal subsidiary undertakings 
at december 31 2004 
incorporated within the uk – held by rollsroyce group plc 
rollsroyce plc principal tradingholding company 
groby limited nontrading company 
incorporated within the uk – held by subsidiary undertakings 
civil aerospace 
rolls el turbofans limited engine support servicesholding company 
rollsroyce general partner limited 
1 
management company 
rollsroyce total care services limited aftermarket support services 
marine systems 
rollsroyce marine electrical systems limited 
2 
marine electrical systems 
rollsroyce marine power operations limited nuclear submarine propulsion systems 
energy 
rollsroyce fuel cell systems limited 
3 
development of fuel cell systems 
financial services and corporate 
rollsroyce aircraft management limited sales ﬁnance and other ﬁnancial services 
rollsroyce capital limited 
3 
sales ﬁnance and other ﬁnancial services 
rollsroyce international limited international support and commercial information services 
rollsroyce leasing limited engine leasing 
rollsroyce overseas holdings limited holding company 
rollsroyce overseas investments limited 
4 
holding company 
rollsroyce power engineering plc power generation and marine systems 
rollsroyce power ventures limited provision of project development capabilities 
vinters engineering plc 
5 
holding company 
vinters plc holding company 
1 
the interest is held by rollsroyce supplies limited 
2 
the interest is held by rollsroyce power engineering plc 
3 
this subsidiary acts as an agent of rollsroyce plc 
4 
the interest is held by rollsroyce overseas holdings limited 
5 
the interest is held by vinters plc 
the above companies operate principally in the uk and the effective group interest is 100 
rollsroyce group plc annual report 2004 82  principal subsidiary undertakings continued 
at december 31 2004 
incorporated overseas – held by subsidiary undertakings 
civil aerospace 
brazil rollsroyce brasil limitada repair and overhaul 
france rollsroyce technical support sarl 
1 
project support 
germany rollsroyce deutschland ltd  co kg 
2 
br700 series engine development and manufacture 
italy europea microfusioni aerospaziali spa manufacture of castings 
usa rollsroyce corporation 
3 
design development and manufacture of gas turbine engines 
usa rollsroyce engine services – oakland inc 
4 
repair and overhaul 
marine systems 
finland rollsroyce oy ab 
5 
manufacture of winches and propeller systems 
norway rollsroyce marine as 
5 
design and manufacture of ship equipmentholding company 
norway ulstein holding as 
6 
holding company 
sweden kamewa holding ab 
5 
holding company 
sweden rollsroyce ab 
7 
manufacture of propeller systems 
usa rollsroyce commercial marine inc 
4 
aftermarket support services 
usa rollsroyce naval marine inc 
4 
design and manufacture of ship propellers 
usa syncrolift inc 
4 
shiplift systems 
energy 
canada rollsroyce canada limited 
8 
industrial gas turbines and aero engine sales service and overhaul 
india rollsroyce energy systems india private limited 
1 
project management and customer support 
singapore rollsroyce pte limited 
1 
engine and turbine compression systems spares 
usa rollsroyce energy systems inc 
4 
turbine generator packages 
financial services and corporate 
canada rollsroyce holdings canada inc holding company 
guernsey nightingale insurance limited 
1 
insurance services 
usa rollsroyce north america usa holdings co 
9 
holding company 
usa rollsroyce north america holdings inc 
10 
holding company 
usa rollsroyce capital inc 
11 
financial services 
1 
the interests are held by rollsroyce overseas holdings limited 
2 
the interest is held as follows 495 rollsroyce erste beteiligungs gmbh 505 rollsroyce zweite beteiligungs gmbh 
3 
the interest is held by rollsroyce asset management inc 
4 
the interests are held by rollsroyce north america ventures i inc 
5 
the interests are held by vinters international limited 
6 
the interest is held by rollsroyce marine as 
7 
the interest is held by kamewa holding ab 
8 
the interest is held by rollsroyce holdings canada inc 
9 
the interest is held by rollsroyce overseas investments limited 
10 
the interest is held by rollsroyce north america usa holdings co 
11 
the interest is held by rollsroyce north america ventures ii inc 
the above companies operate principally in the country of their incorporation

the effective group interest is 100 other than europea microfusioni aerospaziali spa which is 51

a list of all subsidiary undertakings will be included in the company’s annual return to companies house

rollsroyce group plc annual report 2004 83  principal joint ventures 
at december 31 2004 
incorporated within the uk – held by subsidiary undertakings 
class 
 of class 
held 
 of total 
equity held 
civil aerospace 
trt limited a ordinary — 
495 
turbine blade repair services 
turbine surface technologies limited 
b ordinary 
a ordinary 
100 
— 


 
50 
turbine surface coatings 
defence 
airtanker holdings limited 
holding company 
rollsroyce snecma limited uk  france 
engine collaboration 
b ordinary 
ordinary 
a shares 
b shares 
100 


 


 
20 
— 
100 
20 
50 
rollsroyce turbomeca limited uk  france 
adour and rtm322 engines collaboration 
turbounion limited uk germany  italy 
rb199 engine collaboration 
energy 
genistics holdings limited 
holding company of genistics limited 
a shares 
b shares 
ordinary 
a shares 
a ordinary 
b ordinary 


 


 
— 
100 
40 
375 
100 
— 
50 
40 
50 
rolls wood group repair and overhauls limited 
repair and overhaul 
financial services and corporate 
alpha partners leasing limited 
engine leasing 
a ordinary 
b ordinary 
a ordinary 
b ordinary 


 





 
100 
— 
100 
— 
50 
50 
incorporated overseas – held by subsidiary undertakings 
 of class  of total 
class held equity held 
civil aerospace 
china xian xr aero components co limited 
manufacturing facility for aeroengine parts 
hong kong hong kong aero engine services limited 
1 
repair and overhaul 
israel techjet aerofoils limited 
1 
manufacture of compressor aerofoils 
saudi arabia middle east propulsion company limited 
2 
repair and overhaul 
singapore international engine component overhaul pte limited 
1 
repair and overhaul 
singapore singapore aero engine services private limited 
1 
effective interest 39 
repair and overhaul 
spain industria de turbo propulsores sa 
manufacture and maintenance of aero engines 
switzerland iae international aero engines ag uk germany japan  usa 
v2500 series engine collaboration 
ordinary 
ordinary 
a ordinary 
b ordinary 
ordinary 
common 
ordinary 
ordinary 
a shares 
b shares 
c shares 
d shares 









 
49 
45 
50 
50 
167 
50 
30 
469 
100 
— 
— 
— 
49 
45 
50 
167 
50 
30 
469 
325 
usa data systems  solutions llc 
3 
partnership 50 — 
advanced controls and predictive data management 
usa texas aero engine services llc 
4 
partnership 50 — 
repair and overhaul 
usa williamsrolls inc 
5 
uk  north america common 15 15 
small engine collaboration 
rollsroyce group plc annual report 2004 84  principal joint ventures continued 
at december 31 2004 
incorporated overseas – held by subsidiary undertakings continued 
 of class  of total 
class held equity held 
defence 
germany epi europrop international gmbh germany effective interest 355 ordinary 28 28 
a400m engine collaboration 
germany eurojet turbo gmbh uk germany italy  spain effective interest 39 ordinary 33 33 
ej200 engine collaboration 
germany mtu turbomeca rollsroyce gmbh uk france  germany ordinary 333 333 
mtr390 engine collaboration 
financial services and corporate 
isle of man pembroke group limited 
6 
eire ordinary 50 50 
aircraft leasing 
usa alpha leasing us llc 
7 
partnership 50 — 
engine leasing 
usa alpha leasing us no 2 llc 
7 
partnership 50 — 
engine leasing 
usa exostar llc 
8 
partnership 176 — 
b2b exchange 
usa rollsroyce  partners finance us llc 
7 
partnership 50 — 
engine leasing 
unincorporated overseas – held by subsidiary undertakings 
civil aerospace 
usa light helicopter turbine engine company lhtec 
rollsroyce corporation has a 50 interest in this unincorporated partnership which was formed to develop and market jointly the t800 engine 
1 
the interests are held by rollsroyce overseas holdings limited 
2 
the interest is held by middle east equity partners limited 
3 
the partner is rollsroyce control systems holdings co 
4 
the partner is rollsroyce engine services holdings co 
5 
the interest is held by rolls el turbofans limited 
6 
the interest is held by larten limited 
7 
the partner is rollsroyce finance holdings co 
8 
the partner is rollsroyce investment co 
the countries of principal operations are stated in brackets after the name of the company 
joint arrangements that are not entities 
at december 31 2004 
held by subsidiary undertakings 
 of class  of total 
class held equity held 
jersey rs leasing limited 
1 
aircraft leasing 
a ordinary 
b ordinary 
100 
— 



50 
1 
the interest is held by rollsroyce leasing limited 
85 rollsroyce group plc annual report 2004  directors’responsibilities 
for the ﬁnancial statements 
company law requires the directors to prepare ﬁnancial statements for each

ﬁnancial year which give a true and fair view of the state of affairs of the company

and of the group and of the proﬁt or loss for that period in preparing those

ﬁnancial statements the directors are required to

i select suitable accounting policies and then apply them consistently

ii make judgements and estimates that are reasonable and prudent

iii state whether applicable accounting standards have been followed subject

to any material departures disclosed and explained in the ﬁnancial 
statements and 
independent auditors’ report 
to the members of rollsroyce group plc 
we have audited the ﬁnancial statements on pages 52 to 85 we have also 
audited the information in the directors’ remuneration report that is described as 
having been audited 
this report is made solely to the companys members as a body in 
accordance with section 235 of the companies act 1985 our audit work has 
been undertaken so that we might state to the company’s members those 
matters we are required to state to them in an auditors report and for no other 
purpose to the fullest extent permitted by law we do not accept or assume 
responsibility to anyone other than the company and the company’s members 
as a body for our audit work for this report or for the opinions we have formed 
respective responsibilities of directors and auditors 
the directors are responsible for preparing the annual report and the directors’ 
remuneration report as described on this page this includes responsibility for 
preparing the ﬁnancial statements in accordance with applicable united 
kingdom law and accounting standards our responsibilities as independent 
auditors are established in the united kingdom by statute the auditing practices 
board the listing rules of the financial services authority and by our profession’s 
ethical guidance 
we report to you our opinion as to whether the ﬁnancial statements give a 
true and fair view and whether the ﬁnancial statements and the part of the 
directors’ remuneration report to be audited have been properly prepared in 
accordance with the companies act 1985 we also report to you if in our opinion 
the directors’ report is not consistent with the ﬁnancial statements if the company 
has not kept proper accounting records if we have not received all the 
information and explanations we require for our audit or if information speciﬁed 
by law regarding directors’ remuneration and transactions with the group is 
not disclosed 
we review whether the corporate governance statement on pages 33 to 36 
reﬂects the company’s compliance with the nine provisions of the 2003 frc 
code speciﬁed for our review by the listing rules and we report if it does not 
we are not required to consider whether the board’s statements on internal 
control cover all risks and controls or form an opinion on the effectiveness of the 
group’s corporate governance procedures or its risk and control procedures 
we read the other information contained in the annual report including the 
corporate governance statement and the unaudited part of the directors’ 
iv	 prepare the ﬁnancial statements on the going concern basis unless it is 
inappropriate to presume that the company and the group will continue 
in business 
the directors are responsible for keeping proper accounting records which 
disclose with reasonable accuracy at any time the ﬁnancial position of the 
company and to enable them to ensure that the ﬁnancial statements comply 
with the companies act 1985 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 
remuneration report and consider whether it is consistent with the audited 
ﬁnancial statements we consider the implications for our report if we become 
aware of any apparent misstatements or material inconsistencies with the 
ﬁnancial statements 
basis of audit opinion 
we conducted our audit in accordance with auditing standards issued by the 
auditing practices board an audit includes examination on a test basis of 
evidence relevant to the amounts and disclosures in the ﬁnancial statements and 
the part of the directors’ remuneration report to be audited it also includes an 
assessment of the signiﬁcant estimates and judgements made by the directors in 
the preparation of the ﬁnancial statements and of whether the accounting 
policies are appropriate to the groups circumstances consistently applied and 
adequately disclosed 
we planned and performed our audit so as to obtain all the information and 
explanations which we considered necessary in order to provide us with 
sufﬁcient evidence to give reasonable assurance that the ﬁnancial statements and 
the part of the directors’ remuneration report to be audited are free from material 
misstatement whether caused by fraud or other irregularity or error in forming 
our opinion we also evaluated the overall adequacy of the presentation of 
information in the ﬁnancial statements and the part of the directors’ remuneration 
report to be audited 
opinion 
in our opinion the ﬁnancial statements give a true and fair view of the state of 
affairs of the company and the group as at december 31 2004 and of the proﬁt 
of the group for the year then ended and the ﬁnancial statements and the part of 
the directors’ remuneration report to be audited have been properly prepared in 
accordance with the companies act 1985 
kpmg audit plc 
chartered accountants registered auditor 
london 
february 9 2005 
rollsroyce group plc annual report 2004 86  1 
group ﬁve year review 
for the years ended december 31 
2004 2003 2002 2001 2000 
proﬁt and loss account £m £m £m £m £m 
group turnover 5939 5645 5788 6328 5864 
operating proﬁt before exceptional items and net research and development 602 558 540 822 806 
operating exceptional items — 54 75 230 145 
research and development net 282 281 297 358 371 
group operating proﬁt 320 223 168 234 290 
share of operating proﬁt of joint ventures 49 52 66 82 76 
nonoperating and exceptional items 7 5 22 5 77 
net interest payable 70 90 107 119 123 
proﬁt on ordinary activities before taxation 306 180 105 192 166 
taxation 101 64 52 86 87 
proﬁt on ordinary activities after taxation 205 116 53 106 79 
equity minority interests in subsidiary undertakings 1 — — — — 
proﬁt attributable to ordinary shareholders 204 116 53 106 79 
dividends — 53 133 132 126 
transferred tofrom reserves 204 63 80 26 47 
research and development gross 601 619 590 636 604 
earnings per ordinary share 
underlying 1450p 1220p 1110p 2020p 1938p 
basic 1207p 704p 329p 667p 507p 
payments to shareholders per ordinary share 818p
1 
818p
1 
818p 818p 800p 
including b shares 
2004 2003 2002 2001 2000 
balance sheet £m £m £m £m £m 
fixed assets 2793 2878 3007 2783 2846 
current assets 4979 4536 4289 4551 4000 
7772 7414 7296 7334 6846 
liabilities and provisions 5465 5271 5262 5270 4815 
2307 2143 2034 2064 2031 
share capital 346 333 323 320 314 
reserves 1957 1807 1709 1742 1716 
equity shareholders’ funds 2303 2140 2032 2062 2030 
minority interests in subsidiary undertakings 4 3 2 2 1 
2307 2143 2034 2064 2031 
balance sheets for 2000 to 2003 have been restated for uitf 38 see note 1 
2004 2003 2002 2001 2000 
cash ﬂow £m £m £m £m £m 
cash inﬂow from operating activities 640 673 611 418 479 
interest dividends and taxation 150 176 222 147 162 
capital expenditure and ﬁnancial investment 219 198 381 181 253 
acquisitions and disposals 14 16 20 79 53 
285 283 12 169 11 
management of liquid resources 558 90 217 162 324 
financing 274 17 81 113 360 
increasedecrease in cash in the year 1 176 124 120 25 
movement in net funds 243 272 94 189 4 
cash ﬂows for 2000 to 2003 have been restated for uitf 38 see note 1 
87 rollsroyce group plc annual report 2004  shareholder information

internet shareholder information 
the annual report company announcements and other information are available 
on the group’s website at wwwrollsroycecom 
financial calendar 
ex entitlement to b shares 
calculation period for conversion share value for b shares 
record qualifying date for entitlement to b shares 
annual general meeting platinum conference suite excel 
1 western gateway royal victoria dock london e16 1xl 
record qualifying date for b share dividend 
latest time and date for receipt of completed 
redemptionconversion mandates for b shares 
despatch of chequesordinary share certiﬁcates 
b share certiﬁcates following redemptionconversion of b shares 
press advertisement of 2005 interim results 
1 
ex entitlement to b shares 
march 9 2005 
march 915 2005 
march 11 2005 
1130am may 4 2005 
june 10 2005 
5pm june 3 2005 
july 4 2005 
july 29 2005 
october 12 2005 
if you have any queries on the following 
i transfer of shares 
ii change of name or address 
iii lost share certiﬁcates 
iv lost or out of date dividend cheques 
v death of a registered holder of shares 
vi b share distributions 
or any other query relating to rollsroyce group plc shares please write or 
telephone the registrar at the following address 
computershare investor services plc 
po box 82 the pavilions bridgwater road bristol bs99 7nh 
general helpline 0870 702 0111 
the company operates a freeofcharge service for consolidating the individual 
shareholdings of immediate members of a family please ask the registrar for 
details if you are interested 
calculation period for conversion share value for b shares 
record qualifying date for entitlement to b shares 
record qualifying date for b share dividend 
lastest time and date for receipt of completed 
redemptionconversion mandates for b shares 5p
financial year end 
despatch of chequesordinary share certiﬁcates 
october 1218 2005 
october 14 2005 
november 25 2005 
m december 2 2005 
december 31 2005 
low cost share dealing 
details of the low cost dealing service in the company’s shares may be obtained 
from hoare govett corporate finance limited tel 020 7678 8000 hoare govett 
corporate finance limited is a member of the securities and futures authority 
you can obtain the current market price of the company’s shares on the 
group’s website at wwwrollsroycecom or by viewing teletext or similar services 
b share certiﬁcates following redemptionconversion of b shares 
press advertisement of 2005 preliminary results 
1 
2005 annual report published 
1 
preliminary and interim results are notiﬁed by press advertisements only 
january 4 2006 
february 2006 
march 2006 
electronic communicationsproxy voting 
if you would like to receive future shareholder documentation electronically or 
wish to appoint a proxy electronically for this year’s annual general meeting 
please log onto the investors section on the group’s website at 
wwwrollsroycecom to register 
b share information 
share price on ﬁrst day of trading cgt apportionment 
b shares per conversion ordinary ordinary 
b share issues share value shares b shares shares b shares ordinary share first day of trading 
january 4 2005 318 250p january 5 2005 244625p 00955p 9877 123 
june 25 2004 500 212p july 5 2004 241875p 01130p 9772 228 
record date for 
b share dividends calculation period dividend rate b share dividend payment date 
jan 1 2005 to june 30 2005 18433613 june 10 2005 july 1 2005 
july 1 2004 to december 31 2004 18890625 november 26 2004 january 4 2005 
copies of the scheme circular and 528a document which contain more detailed information on b shares are available in the investors section on the 
group’s website at wwwrollsroycecom or on request from the company or the registrar b share helpline 0870 703 0162 
analysis of ordinary shareholders at december 31 2004 sharegift 
number of  of total  of total 
in the uk rollsroyce group plc supports sharegift which is administered by the 
number of shares shareholders shareholders shares orr mackintosh foundation registered charity number 1052686 and which 
1 – 150 91722 3134 066 operates a charity share donation scheme for shareholders with small holdings of 
151 – 500 157997 5399 240 shares which may prove uneconomical to sell 
501 – 10000 40953 1399 412 if you would like to use sharegift or receive more information about the 
10001 – 100000 1280 044 200 scheme they can be contacted by visiting their website at wwwsharegiftorguk 
100001 – 1000000 513 018 1042 or by writing to the orr mackintosh foundation 46 grosvenor street london 
1000001 and over 183 006 8040 w1k 3hn 
292648 10000 10000 the company wishes to thank those 8492 b shareholders who elected to 
donate their b share dividend payable in january 2005 to charity this resulted in a 
payment of £2133 being made to sharegift 
rollsroyce group plc annual report 2004 88  rollsroyce group plc annual report 2004
company profile
rollsroyce group plc
registered office
65 buckingham gate
london sw1e 6at
telephone 
020 7222 9020 
website
wwwrollsroycecom
company number
4706930
shareholder enquiries
computershare investor services plc
po box 82
the pavilions 
bridgwater road 
bristol bs99 7nh
general helpline
0870 702 0111
bshare helpline
0870 703 0162
01 group financial highlights
02 rollsroyce at a glance
04 chairman’s statement
05 chief executive’s review 
18 review of operations
26 finance director’s review
32 board of directors
33 report of the directors
41 directors’remuneration report
52 group profit and loss account 
53 balance sheets 
54 group cash flow statement 
56 group statement of total
recognised gains and losses 
56 group historical cost profits 
and losses 
56 reconciliations of movements 
in shareholders’funds 
57 notes to the financial statements 
82 principal subsidiary undertakings 
84 principal joint ventures 
86 directors’responsibilities 
86 independent auditors’report 
87 group five year review 
88 shareholder information
rollsroyce is a global company 
providing power for use on land
at sea and in the air the company 
has a balanced business portfolio
with leading positions in civil 
and defence aerospacemarine
and energy markets
there are some 54000 rollsroyce
gas turbines in service and these
generate a demand for highvalue
services throughout their
operational livesrollsroyce is 
a technology leader employing
35400 people and operating in
50 countries
® 

all images © rollsroyce plc 2005 
typeset by charnwood t echnic art limited 
designed by radley yeldar london 
printed by st ives burrups limited 
all photography by rollsroyce except 
p12 bottom left boeing p14 right lockheed martin p15 left bae systems 
this report is printed on revive special silk  annual report 2004
rollsro ce gr t 2004 y oup plc annual repor 
® ®

©rollsroyce plc 2005 
rollsroyce group plc 
65 buckingham gate 
london 
sw1e 6at 
wwwrollsroycecom 


Summary:
 1995 
1996 
1997 
1998 
3220 
3887 
4323 
4471 
1999 4634 
2000 
2001 
5864 
6328 
2002 
2003 
5788 
5645 
2004 5939 
sales £m 
1994 27000 
2004 54000 
installed base of 
1995 
1996 
1997 
1998 
75 
91 
101 
106 
1999 113 
2000 
2001 
126 
146 
2002 
2003 
148 
156 
2004 169 
£000 
1995 
1996 
1997 
1998 
76 
77 
101 
126 
1999 132 
2000 
2001 
145 
167 
2002 
2003 
171 
187 
2004 213 
£bn 
1995 
1996 
1997 
1998 
14 
16 
18 
20 
1999 21 
2000 
2001 
26 
29 
2002 
2003 
30 
34 
2004 38 
£bn 
includes 100 per cent of repair 
sir john rose 
a robust business model 
during 2004 
gas turbines in service 
sales per employee 
order book firm and announced service sales 
and overhaul joint ventures 
chief executive’ s review 
our steady evolution 
as a global company 
based on our own state
oftheart technology 
and a consistent strategy 
was evident in many 
encouraging respects 
our business performance in 2004 improved our ﬁnancial position 
across the boardwe continued to win new orders and to 
enhance our existing customer relationships in ways that augur 
well for our future growth as we contemplate a worldwide market 
worth perhaps us2 trillion over the next 20 years and we kept 
up our constant drive for technical innovation and greater 
operational efﬁciency 
continuing progress 
iamparticularly pleased to report that in what was our centenary 
year we grew our total sales by ﬁve per cent to £59 billion and 
lifted our underlying proﬁts before taxation by 21 per cent to 
£345 millionthere was also a strong cash ﬂow performance 
we generated a cash inﬂow of £243 million which resulted in a 
reduction of our yearend net debt to £80 million from £323 million 
at the end of 2003 average net debt for the year at £560 million 
was at its lowest level since 1998 
across our four operating businesses we booked £87 billion 
of ﬁrm new orders and announced a further £24 billion that will 
go into the order book in due coursethis was a record intake for 
the group as was the yearend ﬁrm order book that closed at 
£189 billion our order book has now grown in each of the past 
ten years at a 12 per cent compound annual growth rate 
solid progress was made across all four of the group’s 
target markets 
– 	 in civil aerospace the trent 1000 engine was adopted by 
boeing for its new 787 dreamliner programme and was 
selected for the purchase of 50 aircraft by all nippon airways 
ensuring that rollsroyce will be the launch engine for 
this programme 
– 	 in defence aerospace the european governments 
participating in the euroﬁghter typhoon conﬁrmed 
tranche 2 of the programme resulting in an order worth 
more than £750 million for the group 
– 	 in the marine sector the mt30 derivative of the trent 
engine was selected for the lockheed martin version of the 
us navy’s littoral combat ship complementing our earlier 
success with the demonstrator programme for the ddx 
us destroyer and 
– 	 in the energy sector important contracts were won for 
the westeast china pipeline project and in the middle east 
for the dolphin energy limited gas pipeline which is the 
ﬁrst oil  gas application for the industrial version of the 
trent engine 
these and other successes during the year ensured that 
rollsroyce continued to enhance its strong market position in 
each of its four chosen sectors in civil aerospace we won 40 per 
cent of all new orders placed – our best ever performance in the 
oil  gas sector the success of the industrial trent enhanced our 
position in the market for aeroderived engines 
rollsroyce group plc annual report 2004 05  chief executive’ s review continued 
sir john rose 
every time that rollsroyce sells an engine we have signiﬁcant 
opportunities to secure future revenues for services that will add 
value for our customer and add predictability to our own future 
earningsthe group continued to build up this aspect of the 
business in 2004 revenue from services grew by 14 per cent to 
£32 billion which represented 55 per cent of total sales and 
brought the compound annual growth rate for this side of the 
business to 12 per cent for the past ﬁve years orders for future 
services accounted for £73 billion or 39 per cent of the yearend 
ﬁrm order book 
innovation 
innovative technology and engineering are at the core of our 
business and we pushed ahead with various important initiatives 
during the year rollsroyce last year prepared 250 applications 
for new patents a record total for the group in any one year 
many initiatives involved partnering with research and 
development centres overseas indeed we have now set up an 
international network of technologyoriented relationships and 
more than 50 per cent of the group’s total spending on technology 
programmes will be directed outside the uk  partners based in 
asia are increasingly important to ustowards the end of the year 
we signed a technology agreement with a number of research 
institutions in singapore covering a range of research activities 
further links of this kind are sure to follow 
as a global business we are in the fortunate position of 
being able to recruit the most able students in all the countries in 
which we operate and conduct research however my colleagues 
and i cannot fail to be concerned over the contrast evident in the 
uk where fewer students study the sciences each year if we are 
going to sustain our leadership in an intensely competitive 
marketplace then we will need to ensure a reliable supply of 
talented young engineers and scientists 
the remedy will have to include stimulating more interest 
in science at the classroom level which is why in july we launched 
the rollsroyce science prize it is a £1 million award programme 
that has been designed to act over a number of years as an 
incentive to encourage excellence in science teaching we hope 
it will also inspire more young people to look at the possibility of 
a career in our industry 
a highlyskilled workforce of course demands a best
practices workplace investing in people and technology means 
investing also in our infrastructure and manufacturing capabilities 
one of the most visible signs of this is our factory renewal 
programme last october we opened our new compression 
systems facility at inchinnan in scotlandit is one of a number of 
facilities that will be developed and opened over the next few 
years reﬂecting a total investment of more than £200 million 
as well as rationalising our manufacturing facilities 
we remain focused on improving our manufacturing processes 
simplifying our supply chain and reducing the leadtime involved 
in component deliverythis process delivered a ﬁve per cent 
reduction in our unit costs in 2004 and we are targeting continuing 
cost reduction in 2005 
prospects 
the four sectors of the powersystems market on which rollsroyce 
is focused – civil aerospace defence aerospace marine and energy 
– all enjoy strong demand trends stretching well into the future 
rollsroyce is well placed to beneﬁt from this demand 
having invested heavily in new productstaking advantage of the 
common technological base underpinning all four sectors the group 
has directed its investment into the development of a robust 
portfolio of products that can be adapted and applied to respond 
to new market opportunitiesthus the investment in the trent 
family of engines provided the technical foundation for us to bid 
successfully last year on the new boeing 787 and has also formed 
the basis for new products in other sectors such as the mt30 in the 
marine sector and the industrial trent in the energy sector 
the potential for service revenues is similarly encouraging 
the growing number of rollsroyce engines in service and their long 
service lives promise to ensure attractive returns over many years 
this aspect of the group’s business is evolving rapidly with a 
signiﬁcant level of investment being made in support capabilities 
such as engine repair and overhaul facilities engine leasing and 
predictive data managementwe expect to see a steady rise in the 
number of longterm service agreements with our major customers 
across its four sectors rollsroyce has now established 
a sound position within programmes that will shape the power
systems market for many years to come 
–	 i n civil aerospace conditions remain difﬁcult for some 
airlines but rollsroyce has a broad spread of products 
and customersthe trent engine family has secured a 
50 per cent share of the engine market serving widebodied 
aircrafttrent engines will power the launch of the 
boeing 787 and airbus a380 aircraftthe trent 900 was 
certiﬁed on time paving the way for the ﬁrst ﬂight of the 
a380 in 2005 we also offer a competitive range of engines 
for the regional airlines and corporate aircraft sectors 
–	 i n defence aerospace our position on a broad range of 
mature and new programmes enables us to mitigate the 
impact of volatility on individual programmes and provides 
a stable outlook 
–	i	n the marine sector our naval business is well positioned 
on a number of important new programmes and orders 
in the offshore market recovered strongly in the second 
half of 2004 and 
–	i	n the energy sector our oil  gas business has a strong 
order book and the industrial trent is well placed to secure 
a growing share of the power generation market earlier 
this year we established a joint venture with a consortium 
of companies in asia as a further step in the process of 
bringing to market our solidoxide fuel cell technology 
rollsroyce group plc annual report 2004 06  the group is exposed to exchange rate movements on foreign 
currencies particularly the us dollar which continued to weaken 
relative to sterling throughout 2004 we have however continued 
to pursue our strategy of hedging future net dollar revenues and 
at the end of 2004 had approximately us9 billion of forward cover 
our strong order book the longterm services revenue 
stream and our focus on operational performance underpin the 
group’s expectations of continued growth in proﬁts and reduction 
of average net debt in 2005 we continue to target a ten per cent 
return on sales over the medium term across all our businesses 
as the business model develops and our operational efﬁciency 
continues to improve 
a memorable year 
we celebrated our centenary in 2004 with a huge variety of events 
from highland games in derbyshire to openair concerts and 
air shows including an aerobatics display by the red arrows 
employees enjoyed the opportunity to entertain their families in 
5
the workplace at all of our main sites around the world we also 
sponsored many special events – notably a series of concerts in 
singapore hong kong and beijing by the london symphony 
orchestra which like us was celebrating its 100th year 
so it was a year in which the unique character of 
rollsroyce was more than usually apparent to all of those who 
work in the group a fact we were proud to acknowledge by 
presenting every employee with a copy of a beautifully produced 
book tracing the history of the company’s ﬁrst 100 years 
as we set out on the next 100 i would like to thank all our 
employees for the huge contribution that they made in 2004it is	 
only through their dedication and cooperation that the group 
can look forward to retaining its competitive vigour and delivering 
value to customers and shareholders 
sir john rose 
chief executive 
our strategy for future 
success consists of 
ﬁve key elements 
–		a ddress four global markets 
–		i nvest in technology  capability 
and infrastructure 
–		d evelop a competitive portfolio 
of products and services 
–		 grow mark et share and installed 
product base 
–		ca pture substantial aftermarket 
opportunities 
rollsroyce group plc annual report 2004 07  rollsroyce group plc annual report 2004 08 
our strategy 
15 0  09 rollsroyce group plc annual report 2004
i 
i  
i ldleading 
andy ang 
mari 
address four global markets 
we are a leading powersystems company 
in civil and defence aerospacemar ne and energy 
marketswe employ 50 nationalities in 50 countries 
85 per cent of our sales are achieved outside the 
uk and 40 per cent of our employees are based 
outside the ukwe manufacture in 20 countries 
and serve customers in 150 countries 
left to r ght 
barnoldswick uk 
alex gallacher 
alex is a diffusion bond facility 
associate part of the team 
manufactur ng wor 
widechord fan blades 
singapore 
as general manager – 
aftermarket working for our 
ne business in singapore 
andy is responsible for spares 
maintenance overhauls and 
equipment upgrades 
toulouse  f rance 
cindy solar 
administrative assistant 
cindy ensures the smooth 
running of the rollsroyce 
ofﬁce in toulouse 
indianapolis usa 
huerta t ribble 
huerta is an engineer who 
supervises in the component 
test and air facilities  10 
continued 
ld 
 
bladed discs 
the atrium of the 
the group continues 
to i 
rollsroyce group plc annual report 2004 
our strategy 
in vest in technology  capability 
and infrastructure 
over the last ﬁve years we have invested more 
than £3 billion in research and development 
creating advanced technologies that are employed 
across our product rangewe invest around 
£30 million each year in training and developing 
our peoplewe continue to invest in new and 
more efﬁcient production facilities as well as 
repair and overhaul facilities around the wor 
as our customer base grows 
right new technology blisks 
opposite 
new manufacturing facility 
at inchinnan scotland 
left 
nvest in development 
opportunities and training 
programmes for employees  11 
3bn 
rollsroyce group plc annual report 2004  12 
continued 
50 
rollsroyce group plc annual report 2004 
our strategy  13 
the boeing 787 is a family 
j 
l 
will propel a 700passenger 
duri 
joint stri i 
tm 
airbus a380 
l 
ly 
500 and 600 passengers and 
– 
l 
– l 
– l i 
– 
i  
launched during 2004 pipeline in the middle east 
rollsroyce group plc annual report 2004 
boeing 787 dreamliner 
of midsized aircraft being 
developed by boeingthese 
aircraft will be powered by the 
trent 1000 engine which was 
water ets 
the group’s kamewa waterjets 
are employed in both naval and 
commercial marine applications 
among these are the wor d’s 
most powerful waterjets 
kamewa vlw235s which 
japanese technosuperliner 
ferry at 38 knotsthe ferry is 
due to enter service in 2005 
industrial t rent 
ng 2004 rollsroyce won 
a major contract to supply six 
mechanical drive industrial trent 
compression packages for the 
dolphin energy limited gas 
joint strike fighter 
rollsroyce and customer 
representatives discuss the 
ke f ghter rollsroyce 
participates in the f136 propulsion 
system for the aircraft and is 
responsible for the vertical lift 
liftfan system 
airbus unveiled the wor d’s 
largest passenger jet in ear 
2005 the airbus a380 
the aircraft will carry between 
is powered by rollsroyce 
trent 900 engines 
de v e lop a c o mpetitiv e port f o lio 
of pr oducts and servic es 
our strong product portfolio has ensured that we 
are involved in many of the major future projects in 
the markets we servethese key projects will shape 
the power systems market for the next 50 years 
trent to power new airbus and boeing airlinersconﬁrming 
it as the wor d’ s leading large aeroengine family 
wor d’ s most powerful aeroderived gas turbine 
the industrial trent 
wor d’ s most powerful mar ne gas turbine the mt30 
global leadership in military transport power continues 
with tp400 development 
left to r ght  14 
continued 
our mari 
rollsroyce group plc annual report 2004 
our strategy 
grow market share and 
installed product base 
we have 54000 gas turbines in servicedelivering 
power for landsea and air applicationswe power 
42 of the top 50 airlines and 160 defence customers 
ne products are used by 70 navies and 
2000 commercial customersour energy systems 
are used in 120 countries  15 
l  china is a major new 
 
i 
 
below right 
i 
rollsroyce group plc annual report 2004 
far eft 
customer for the trent engine 
below left rollsroyce is playing 
a key role in the joint str ke 
fighter programme 
below the type 45 destroyer 
for the royal navy will be 
wr21 powered 
part of the 3900km 
westeast china p peline project 
which uses rollsroyce rb211 
gas turbines 
54  000  16 
continued 
 
the home page of 
ight i 
the operations room 
i 
rollsroyce group plc annual report 2004 
our strategy 
left ej200 engine service 
support for the raf  
below 
the group’s aeromanager 
web portal 
above r work ng together – 
arollsroyce marine representative 
with a customer in korea 
right 
in derby provides airline 
customers with a 24hour 
engine monitor ng service  17 
50

50 
of the business 
rollsroyce group plc annual report 2004 
capture substantial 
aftermarket opportunities 
add value for our customers through the 
provision of productrelated services 
our large installed base of engines provides a 
substantial opportunity to add value for our 
customersmore than half of our revenue now 
comes from services and this part 
has been growing by 12 per cent per annum 
compound over the last ﬁve years